refinance

Crunch numbers for low-cost refi

Before you dive into refinancing your home, consider the break-even point. The "break-even" is the point that signifies how soon you'll recoup the cost of refinancing with a lower monthly mortgage rate. If you're looking for a low-cost refinance, calculate your break-even point before you jump into a new mortgage.

Consider maximum payback period

For a low-cost refinance, you need to recoup the cost of refinance within a reasonable amount of time, which is usually three years or fewer. However, if you don't plan on being in your home for more than three years and you won't recoup the cost, then it probably isn't worth the trouble.

Go for zero-cost

A zero-cost refinance is automatically beneficial if you can get a lower rate than the one you're currently paying. Even if the rate is only slightly lower, you'll still be saving some money on a monthly basis. Zero-cost refinance means paying no money upfront with any loan or interest rate increases. To look for mortgage rates, use Bankrate's find a mortgage rate tool.

Calculate break-even point

To see if you can pull off a low-cost refi, you need to calculate the break-even point. Simply divide the estimated total cost of the refinance by the savings on your loan payment to get the break-even point. For example, a total refinance cost of $3,000 divided by a monthly savings of $200 would be 15 months. It would take you 15 months to pay off the cost of the refinance. For an easy way to see if you'll break-even, use Bankrate's mortgage refinance break-even calculator.

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