Question

what factors you would consider. For example, should we follow Fed announcements and try to anticipate movement? Should we just refinance whenever there is a 25 basis point difference? Should we only refinance when we receive offers of no closing fees or anticipate a return of "X%"?

Answer 1

Solution:

There are many factors that need to be considered while going for refinance-

1. Interest rate: Interest rate plays an important role in refinancing. If the interest rate is decreased by a good basis points then it is good to refinance the loan.
2. Refinance cost: There are various costs associated with closing the previous loan and refinancing the loan. If the closing fee is higher than the interest rate change then the refinancing would be costlier.
3. Other factors: Various other factors like tenure, income level change etc. also plays an important role in refinancing.

When there is decrease in 25 basis points then considering refinancing is not a good option as we may have higher closing fee than 25 basis points or 0.25%.

If we are offered no closing fee then we may consider if we are getting good return of at least 0.5%. There are many arguments that we should consider for refinance when we get at least 1% return, but if we have higher amount of loan then we can think even if we are getting 0.25% return.