Asked by Beverly  |  Submitted November 03, 2015

We have a second home that we currently rent out. It has a mortgage with a 5.5% interest rate. Is it worth it to refinance for a lower rate?

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  Answers  |  2

November 03, 2015

The "Is it a good time to refi?" question should almost always be followed by this question - "How long will it take to break even?"

If the new loan will cost you $2000, and you will be saving $200 a month, it will take 10 months of the new payment before you've actually saved any money. That's your break even time. Will you be keeping the house longer than that? How long? Any other changes coming?

At 5.5 today, there is room to get a lower rate. You might even settle on a lower rate with no closing costs. That will have a smaller monthly savings, but your break even will be immediate. Talk to your local mortgage guy about options.

So your answer is "do the math." Cost/monthly savings=time to break even. Base your decisions on the rest of your financial plan as to whether that makes sense for you.

$commenter.renderDisplayableName() | 09.30.20 @ 15:54


November 05, 2015

If rented, you will need to refinance it as a "rental property" and not as a second home ... depending on the balance and value and your plans to keep the home - it's likely worth refinancing it. (even as a rental property)

$commenter.renderDisplayableName() | 09.30.20 @ 15:54