Closed on our home in February 2023, conventional 5% down, financing $288k at 6.375%, no points. Rates seem to be dropping quick and I’m considering sending in a credit app, tier 1 credit. Anyone else in a similar spot? When does it make sense to refinance?
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When to refinance often comes down to a break-even analysis: how long it takes for the savings from a lower rate to cover the costs of refinancing. Here’s how it works:
Estimate Your Refinance Costs: Typically, closing costs range from 2-5% of the loan amount. For your $288k loan, that’s about $5,760 to $14,400.
Calculate Your Monthly Savings: For example, if you can drop your rate from 6.375% to 5.75%, your new monthly payment would be around $1,680, saving you roughly $120 per month.
Break-Even Point: Divide your refinance costs by your monthly savings. So, if your costs are $6,000 and you save $120/month, it would take about 50 months (just over 4 years) to break even.
In this environment of lower rates; typically 18-24 months breakeven is considered a good refinance.
If you plan to stay in the home longer than the break-even period, refinancing could make sense! However, timing is key—sometimes it’s better to hold off. I go into more detail on when not to refinance in this video: https://youtu.be/tEoUw_S2hKs. Check it out for more insights!
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Refinance every time when the rate drops down by a whole 1%, at least that’s going to be my strategy
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I’m at 6.99%. I am thirsting after some of these rates I see given I owe big bank $460k 
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Same rate for me and owe $663k… getting a 5.5% like some on this thread would be a crazy difference
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With your loan amount and current rate, refinancing to 5.5% could indeed make a huge difference! Your breakeven would be just about 6 months, assuming $4K in closing costs. This means if rates drop again in 6 months, you could consider another refinance without worrying about recouping costs from this one. It’s a great time to look into it!
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With your current rate of 6.99% and assuming closing costs of $4,000, a breakeven analysis shows you’d already be “in the money” with a refinance at 5.75%. Your breakeven point would be about 11 months, which is quite decent! You can use the workbook linked in the description of this video to play around with your own numbers: https://youtu.be/tEoUw_S2hKs. Also, check out today’s refinance rates here: https://youtube.com/shorts/Hrswc3snBlM?feature=share.
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