Before refinancing, ask yourself this question

To refinance or not to refinance? That’s the question homeowners are asking as mortgage rates remain low by historical standards. But before you take the plunge and sign on the dotted line, ask yourself this:

“What’s my break-even point?”

Let’s back up a little. When you’re refinancing, you’re usually looking for a lower interest rate than the one you currently have on your mortgage. A lower interest rate typically translates into a lower monthly payment amount, which may free up more of your money for savings, expenses or paying down more mortgage principal.

So it’s just a matter of finding a lower interest rate and a trusted bank, right? Not so fast, because there are refinancing costs you need to consider — fees, appraisals and the like. And that’s where the break-even point comes into play.

Your break-even point is when the savings you will have earned with a lower, refinanced interest rate are greater than the costs you will have undergone to refinance.

Put another way, how long you think you’ll stay in your current home should be a key factor in your decision. If you’ll continue owning that home for longer than the break-even point, refinancing may be an attractive option. If you know you’re going to move really soon, though, and may not reach the break-even point, you’ll want to run the numbers and make sure refinancing isn’t costlier for you than doing nothing.

Oh, and one other thing. Typically, refinancing will require a credit check. So if you haven’t checked your credit in a while and you’re thinking about refinancing, get in the know now with TransUnion Credit Monitoring.