When to Refinance

If you're wondering when to refinance, a finance company will likely tell you that just about anytime is the right time. Of course it is - that's how they make their income.

I'm not going to suggest refinancing to get money out of your house. That will have to wait for another time. What I want to speak to is how to save money by refinancing so you can take advantage of a lower interest rate and possibly get out of an adjustable rate loan or balloon payment that you have coming due.

Whatever you do, make certain that refinancing your home is done because of compelling reasons, not compelling advertising about record low interest rates. Refinancing has to save you considerable money on your payments, otherwise, it might not be well worth doing, especially if you aren't going to stay in your home for many years.

A friend of mine wanted to refinance to save money. I did the math quickly in my head and advised against it. With the money she would have paid to refinance, she wouldn't have reached "break even" on the potential savings until year three.

Three years until break even, and paying others to wait that long doesn't seem like one of the better money saving ideas to me. As it turned out, she sold the home a couple years later when she got married. So, it was a good decision to leave it alone, even though interest rates had dropped and she could have saved money over the long haul.

I think you need to see savings sooner than year three to make it worth your while to refinance. Remember, refinancing is just like financing a home in the first place. There are fees to pay for the loan, and your savings are offset by these fees.

Do the math and make certain you are seeing net savings in a year or so, otherwise it's not going to be worthwhile. If you plan to sell your home within a year or two, it's also not worthwhile to refinance. Let the new owners get a good rate when they finance the sale.

Don't let finance companies tell you when to refinance. It's your money and your home, so you make the decision yourself. If it doesn't make sense on paper or in accordance with your plans to relocate, then sit tight and get the great finance rate with your next home.