Should I refinance my mortgage?

With mortgage interest rates hovering near historic lows, many people are wondering if they should refinance their mortgages. If you're one of those people, here are some things for you to think about on the road to your decision – to refinance … or not to refinance.

Reasons to refinance

• Lock in lower interest rate: Reduce monthly payments
• Shorten mortgage term: Quicker loan payoff
• Switch from adjustable- rate to fixed-rate mortgage: Make finances more predictable

Refinancing expenses

• Closing costs: Generally from 2% to 3% of the amount being refinanced
• Prepayment penalty: Does your current loan contain this charge? If yes, that amount will be added to the closing costs of your new loan
• Do some research: Will refinancing, in the long run, save you money, or even recover your refinancing expenses?

Do the math

Here's a hypothetical example showing the time period before recovering refinancing expenses.

According to this example …

• If you are planning to sell your property within 2½ years, the cost of refinancing outweighs the savings - so refinancing is probably not a good idea.
• If you're holding on to this property for the long run, you should consider refinancing.

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