When Should You do Mortgage Refinancing?

Mortgage refinancing is a long and complicated process that can cost you money in the short run, but save you tens of thousands in the long run. When is a good time to consider refinancing? Interest rates are at record lows in May 2009, but is that itself a compelling reason to refinance?
First, has the average market rate for mortgages dropped two or more points below what you are paying on your mortgage? Because mortgage refinancing can cost a few thousand dollars up front in fees, it makes sense to refinance only when you would save more on the refinanced mortgage than you would spend on fees. Experts recommend not refinancing unless your interest rates would drop at least two percent to offset this effect.
Second, how much longer are you planning to own this house? If you will be living in the house for years to come or you plan to own it long term as a rental property, then mortgage refinancing makes sense. On the other hand, if you are leaving in only a few years, then it does not make sense to refinance unless you know when you are leaving and you need lower mortgage payments between now and then. In that case, a mortgage that has exceptionally low rates for a grace period of a few years would be a good choice. The interest rate would shoot up after the grace period, but if you timed the sale of your house to fall before the end of the grace period, you would not need to pay the higher rate.
The best way to decide whether its time for mortgage refinancing is to sit down with a mortgage calculator and calculate the break even point. This is the date on which the amount you save on a new mortgage equals the amount you spend to refinance. If the date falls before the time you plan to sell your house, then refinancing is a good idea. If you plan to have already sold the house on the break even date, or the break even date is so close to your planned date of sale that the savings are negligible, then refinancing is not a wise idea.
Mortgage refinancing takes time, effort, and money, so it is not to be undertaken lightly. Do not refinance just because it can be hard to resist the low, low interest rates on offer. Calculate how much you will save, and use the answer to determine whether now is the time for you to do a mortgage refinancing.