The rules on refinancing have changed greatly because of the availability of no-cost and low-cost mortgages, ones where the lender is paying some or all of the costs of refinancing. When you can refinance and it costs you little or nothing, it makes sense to refinance even if rates have only dropped marginally.
If you hear that interest rates have dropped, call your lender to see what the rate would be for a no-cost loan. Many people make the mistake of waiting for the ‘bottom.’ The time to refinance is when refinancing will save you money; if rates continue to drop, and you do not have a prepayment penalty, you can simply refinance again. If you are working with a competent mortgage broker, refinancing the second time will be fast and easy. And if rates move up after the first refinance, congratulations—you did catch the bottom!
If you are certain you will be moving within the next two years, refinancing into a no-cost adjustable rate loan might save you a considerable amount of money before you move. You may be able to cut your monthly payments by hundreds of dollars a month, knowing that you will be out of this new mortgage before its interest rate rises to the level of your current mortgage.
If you want to take some cash out of your property, refinancing may be the right thing to do. However, be sure to compare the difference in total monthly payment between adding a home equity line or loan to your existing mortgage, and in getting a new first mortgage for the entire amount you need. If you have a low fixed rate on your first mortgage and you think that you will be able to pay off a new home equity line within a few years, it is probably better to keep your existing first.
