I get this question to many times a day, but the honest answer isn't so easy. A lot of Realtors and others will tell you if you can save 1% off our rate then it is a "no brainer". I will respectfully disagree.
We need to take a hard look at other factors.
How long are you planning to stay in your home?
What type of loan do you have now?
Are you paying MI or PMI?
What is your loan to value?
So let us play 20 answers or so (you get the idea, plus this make you leave comments)
•1) If you say to me that you plan to sell as soon as the market recovers------ Do not refinance
•2) If you say to me that you see 5 to 10 years in this home, then I will say to you that a 3 to 5 year pay back is acceptable.
•3) If you have a subsidize loan, STOP read your prepayment clause. Unless you have had the loan for 10 years you will probably pay through the nose.
•4) If you are at 6% or so and have no MI or PMI STOP. Most of the country is a declining market. So talk to a few appraisers and get their honest opinions.
•5) If you have MI or PMI and your credit score is say under a 680. Stop your payment will go up even if your rate goes down
•6) If you have a FHA loan or a USDA Rural Development loan, ask about a streamline refinance. This might save you if you have had credit issues since the purchase but have been able to keep the house payments current.
•7) Use basic budgeting skills and also look at amortization charts. Determine what is best for you and your family.
•8) Can you use the "savings" to retire higher interest rate debt? Saving $100 a month to pay off a 20% credit card might help you better in your long term financial future.
•9) Are you planning to place the "savings" into your retirement plan? This might be an acceptable plan, depending on how long you plan to stay in the home.
•10) You get the idea. There is no "rule" for refinancing.
AS LONG AS YOU ARE NOT USING YOUR HOME AS AN ATM.