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When should you refinance your mortgage?

When considering refinancing, make sure you understand the costs and benefits. People refinance to lower their interest rate and payment. Prevailing wisdom says that you should consider refinancing if you can save 2% on interest. Many lenders say 1% is enough of an incentive. Since refinancing costs between 3% and 6% of the principal and requires fees for an appraisal, a title search, and application fees, it’s essential to do the math and make sure it’s worth it.

When should you not refinance?

You should take a look at several factors, including closing costs and the break-even point, which is how many months it will take to save the amount it cost to refinance. If you’ve refinanced within the last couple of years, check your contract to make sure there isn’t a prepayment penalty on your loan. If rates are currently low, it doesn’t make sense to refinance to an adjustable rate, since you may end up paying more over time.

Does refinancing hurt your credit?

When you refinance, lenders will check your credit score and history. It’s known as a hard inquiry, and it can lower your credit score slightly but only temporarily. These inquiries are required for you to get a new loan, so it’s part of the process. If you’re shopping for a mortgage, you want to make sure these credit checks come in close together, not months apart. The thing that hurts your credit is late or missing payments, so keep on top of the bills, and your refinance should proceed without any trouble.

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