“Should I refinance my loan?” I get this question over and over from my real estate clients all over the Indianapolis metro area including the outlining communities of Brownsburg, Carmel and Zionsville.

The answer is pretty easy and it depends on three things:

1. Is the current interest rate at least one point lower than your existing rate?
2. How long do you plan to live in the home?
3. What is the cost to close the loan?

If the current interest rate is a minimum of one point lower than your existing rate AND if you plan on living in your home for at least five years, my recommendation is to rush to your local mortgage broker or banker and refinance. Alternatively, if you have an adjustable rate mortgage (and I hope you don’t), you should also consider refinancing at the lower rate.

Depending on the size of your loan, your monthly payments could be much lower and save you a ton of cash over the life of the loan.

For example, if you purchased a home for $175,000 and took out a traditional 30-year mortgage at 6.5{6823ff9777938b58e5be816e102fe5834d399a149a10e63bb255bc5cf9cea7ae}, your monthly payments would be $1,106 and your 30-year expense would be $398,203. If you were to refinance at 5.5{6823ff9777938b58e5be816e102fe5834d399a149a10e63bb255bc5cf9cea7ae}, your monthly payments would be $994 and your 30-year expense would be $357,707. Your 30-year savings would equal $40,496!

The other criterion for your decision on whether or not to refinance is what will it cost to close the loan? Considering the above example, if closing costs were $3,000, it would take 27 months to earn a payback. In this scenario, the borrower won’t save any money by refinancing if he doesn’t stay in the home for at least 27 months.

Closing costs will vary from lender to lender. I recommend that you start by talking to your current lender since they will likely want to keep your business and they may be willing to forgo most of the refinancing costs.

If you want to work with a new banker or mortgage broker, take caution as you shop around. Ask your friends and colleagues for recommendations. Your Realtor may also be able to point you in the direction of some quality lenders.

If you live in the Indianapolis area I will make sure you are working with a professional lender. In particular, I have a wealth of experience with buyers and sellers on the north and west sides of Indianapolis including Pike Township, Brownsburg, Carmel and the village of Zionsville.