Should I Refinance If I Only Plan on Living in My Home for a Few More Years?

In short, it depends. The process of refinancing your mortgage loan brings with it fees, taxes, and other costs and expenses, just as your initial mortgage loan did when you purchased your home.

It's a good idea to determine the point in time at which the savings from your new mortgage’s lowered rates will be greater than the costs you paid to refinance. This is called the "break-even" point and is the point in time when refinancing will actually start to save you money.

Therefore, you should refinance only if the monthly savings on your new interest rate and other payments will add up to an amount equal to or greater than the refinancing costs, which are generally the same as the costs and fees paid for your original loan. If you will break even before you move out of the home, then it can be worthwhile to refinance. Otherwise, refinancing will end up costing you more than it saves.

Be sure you understand how the new loan will affect your payments and take careful account of the costs of refinancing. Even if you move out after just a few years, it can still be possible to break even early and begin saving.

Tellus TIP:

A general rule is to refinance only if your savings will be higher than the costs of refinancing (when you will break even) before you plan to move away.