[This post is part of the Financial Rules of Thumb series. Check out the rest here!] Rules of Thumb for refinancing your mortgage are hard to come by. The one I’ve heard most often is "Refinance your home when interest rates have dropped by more than 1%" Interest rates are still hanging around historic lows.
Gianni cerretani (mortgagegodfather) #34 ranked lender in Georgia – 238 contributions The 2% rule is that most of the time when you are refinancing for it to be financially worth it, the general rule of thumb is that you want to see a decrease in your current interes rate of 2%.
The most important factor that lenders use as a rule of thumb for how much you can borrow is your debt-to-income ratio, which determines how much of your income is needed to pay your debt obligations, such as your mortgage, your credit card payments, and your student loans.
You could apply that same rule of thumb to refinancing a reverse mortgage. When interest rates rise, as they did throughout 2018, refinancing reverse mortgages or other home loans could wipe out.
CalcXML’s Refinance Calculator will help you determine how much interest you could save by refinancing your mortgage with a lower interest rate.
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If you’re considering refinancing your mortgage, you may have searched for the "refinance rule of thumb" to help you make your decision. Of course, there isn’t a single refinance rule of thumb. One popular one is that you should only refinance if your new interest rate will be two percentage points lower than your current mortgage rate.
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The typical rule of thumb is that, if you can reduce your current interest rate by 1% or more, it might make sense to refinance because of the money you’ll save.
The 2% rule is an old rule-of-thumb for deciding whether or not to refinance your mortgage. The reality is, it’s not quite that simple, and never has been.
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An old rule of thumb is that refinancing makes sense if you’re able to get a rate that shaves a percentage point off your mortgage, Gumbinger said. For instance, on a $200,000, 30-year fixed-rate.
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