Refinance: Is now the time?

How do you decide if refinancing your home mortgage makes sense?

Factors to consider are your tax bracket, the length of time you plan to stay in your home, refinancing costs and, believe it or not, your current outstanding mortgage balance.

The chart below was developed to answer this question and shows the net savings or cost you can expect 5 years after refinancing.

Various outstanding principal balances are shown down the left-hand column, while the net change in current versus market interest rates is located across the top. For example, if your outstanding mortgage principal balance is $175,000 and market interest rates are currently 1% below your current rate, by refinancing you will save $1,903 over 5 years.

You have probably heard that it only makes sense to refinance if the new interest rate is at least 2 percentage points lower than your current rate. This chart illustrates that the amount of your current outstanding principal balance is just as important as the new interest rate you could receive.