Should you refinance your mortgage? Calculate your potential savings.
If you're on a fixed rate, ask your current bank for a break fee quote before refinancing. Break fees can be substantial and may outweigh the savings from a lower rate.
Refinancing is worth it if you can save at least 0.5% on your interest rate and plan to stay in your home for 2+ years. Factor in break fees, legal costs, and any cashback offers.
Break fees apply when you exit a fixed rate early. They compensate the bank for lost interest and can range from a few hundred to tens of thousands of dollars depending on the rate difference and time remaining.
A 0.5% rate reduction on a $500,000 loan saves approximately $200/month or $2,400/year. Over the life of the loan, this can total $50,000+ in savings.
Cashback offers (typically $2,000-$5,000) can help offset switching costs, but check if the rate is competitive. Sometimes a lower rate without cashback saves more long-term.
You can refinance as often as you like, but it's usually only worthwhile every 2-3 years when fixed terms expire. Switching during a fixed term incurs break fees.