When does it make sense for Minnesota home owners to refinance their home loans?

This is a real common question I receive each week from listeners of Sweet Home Minnesota.  The answer, as with all things in life, is that it depends.  But, here’s a real simple breakdown for what you can look for right now. (Follow this link For a more detailed discussion about Refinanincing Your Mortgage)

A new 30 year fixed rate home loan is at about a 4.50% interest rate, assuming great credit and all things are good.  (Click here to see the average national mortgage interest rates from Freddie Mac) So, what I did was look at what the typical closing costs would be to refinance a home loan in Minnesota and see what rate you would need to be at today in order to have those closing costs paid for within 3 years based on the savings in your monthly payment.  This is what I refer to as you “breakeven point” when refinancing your mortgage.

Current Rate   Current Loan Amount
5.00%                $250,000 or higher
5.50%                $200,000 to $250,000
6.00%                $150,000 to $200,000
6.50%                $80,000 to $150,000

I didn’t go below $80,000 because I rarely find that it makes sense to refinace a loan of this size unless we are rolling in some other debt, such as a second mortgage or Home Equity Line of Credit.

There are all sorts of other scenarios that need to be looked at.  Right now a lot of people are looking at shortening their mortgages.  Interest rates are low enough that we are cutting five or more years off people’s loans without increasing their monthly payments.

Let us know if you have questions about whether or not it makes sense for you to refinance your home loan.

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