When to Refinance Again

THOSE who refinanced their mortgages a year or so ago, when interest rates averaged just below 5 percent for a 30-year fixed-rate loan, may be wondering whether it’s time to refinance yet again, now that rates are at least a full percentage point lower.

As of Thursday, according to Freddie Mac’s weekly survey, the average rate on a 30-year loan was 3.84 percent, down from 3.88 percent the previous week and 4.71 percent around the same time a year ago. The rate on the 15-year loan averaged 3.07 percent, off from 3.12 percent the previous week and 3.89 percent last year. A Freddie Mac spokesman says the rates are the lowest in the 41-year history of the weekly survey.

Many homeowners opted to refinance last fall and winter when mortgage rates first dipped below 4 percent, said Guy Cecala, the chief executive of Inside Mortgage Finance, a trade publication. “People who jumped at 5 percent also jumped on 4 percent,” he said.

Mr. Cecala says many borrowers refinancing these days are at least second-timers — he, for one, did so last fall in order to cut his mortgage interest three-quarters of a percentage point — but he said he knew of no specific data tracking this trend.

If you’re considering refinancing, financial planners suggest you first delve into your financial goals — specifically, how long you expect to live in your home.

Some homeowners decide it makes more sense to stay with their current mortgage, especially if the savings are small or they plan to move within a year or two. “There is a hassle to refinancing — all this paperwork,” said Sheila Walker Hartwell, a financial planner in Manhattan. One of her clients, she noted, recently decided against refinancing because she was already building equity in her home, which she hoped to use on her next home purchase.

“When you refinance, you’re not building equity,” Ms. Walker Hartwell said. “You’re starting at the beginning” of the amortization tables.

Amortization schedules work like this: In the first few years, almost all of the payment goes toward interest, so the longer you have the loan, the more is put toward the principal.

“That’s very important,” said Edward Ades, a partner in Universal Mortgage in Brooklyn. He noted, for example, that in the first year of a $300,000 30-year mortgage at 4 percent, a borrower would have paid off 1.76 percent of the balance; in the fifth year, that rises to 2.06 percent.

Those who refinanced in the last year or two don’t have to consider amortization tables, but they do need to know their equity position — and when the refinancing would begin to pay off.

To calculate that, start with a rundown of all the closing costs, then divide the closing costs by the amount you expect to save on each monthly payment. So if closing costs total $5,000, and your monthly savings are $400, it will take you 12.5 months to break even on refinancing.

If it takes you, say, three years to recoup the costs and you hope to move within two years, then refinancing does not make sense, said John J. Vento, a Staten Island financial planner.

Depending on your lender, you probably need to have 20 percent equity, and maybe a little more, if you want to wrap your closing costs into the new mortgage. Those who are underwater — shorthand for owing more than the home is worth — may consider the Home Affordable Refinance Program, or HARP, which is now widely available, Mr. Cecala noted.

Greg McBride, a senior financial analyst for Bankrate.com, suggests homeowners start with their current lender, and ask if they can streamline the process. You may be able to avoid a second appraisal and title insurance reports and fees, he said, adding, “That would save not only time but also money.”

He also suggests that borrowers check out new lenders and consider a shorter loan term, to “shave years off the payments” and build equity faster.