In order to find out if you need to refinance or not, you should find out how long does it take to recoup the refinance charge you will be spending. Therefore, experts say you should not refinance if you are moving house soon.

The first step is calculating payback period:

payback period (months) = 12 x (cost of refinance / interest savings)

     Cost of refinance includes points and fees.

     Interest savings is how much you would save in your monthly payments when comparing the new mortgage payments Vs the old one.

     Interest savings = (remaining balance of the mortgage 

Interest Savings

=

Remaining Balance of mortgage x old interest rate

-

(Remaining Balance + Refinance Costs) x new interst rate

Example:

Your remaining mortgage balance is $100,000

Cost of refinance is $5,000

Old interest rate is 8%

New mortgage interest rate is 6%

And, you are wonder ing if the refinance is worth it.

Payback period in this case is

= (12 x $5,000) / {($100,000 x 8%) - ($105,000 x 6%)}

= $60,000/$1,700

= 35.29 months or almost 3 years.

     This means it will be 3 years before you start seeing any cost savings or benefits of refinancing. If you are planning to stay in the house for less than 3 years, it is not good in this case to refinance.