As Rates Fall, Is It Time to Refinance?

It is a good idea for the term of your new loan to match (or be under) the remaining years on your existing loan. If you refinance instead with a 30-year loan, your monthly payments would be much lower than on the 15-year loan, but you would end up paying a lot more in interest because of the longer payout period. What's more, by shortening the time frame of your loan you'll build up equity in your home quicker. After just five years with the new 15-year loan, you'll have about $22,000 more in home equity than after five more years with your existing loan.

You should also consider how long you plan to stay in your existing home: It's generally not a good idea to refinance unless you'll stay long enough to break even on closing costs. The report from the Refinance Interest Savings calculator provides details of savings as well as the estimated break-even point. In the above example, it would take seven years for the $48 monthly savings to pay back the $4,000 in "refi" closing costs. If you think you'll move before then, you may want to think twice about refinancing.