The Refinance Math Has Changed
A few years back, we were refinancing anyone who could save even half a percent on their rate. These days, with rates higher than they were during the pandemic years, the math looks different. But that doesn't mean refinancing never makes sense—you just need to be more strategic about it.
When It Still Works
If you bought in late 2023 or early 2024 when rates briefly spiked above 7%, and your credit has improved since then, you might qualify for a meaningfully better rate now. Even dropping from 7.25% to 6.5% can save real money over time.
Cash-out refinances are another story. With home values still elevated in Colorado's mountain markets, you might have substantial equity. If you need cash for major home improvements, debt consolidation, or another investment property down payment, a cash-out refi could make sense even at today's rates.
The ARM Consideration
If you originally took a 5/1 or 7/1 ARM and it's about to adjust, refinancing to a fixed rate gives you payment stability. This is especially relevant now because when those ARMs adjust, they could jump significantly in the current rate environment.
When to Hold Off
If you've got a rate under 5%, probably don't touch it. The closing costs to refinance—typically 2-3% of the loan amount—won't be worth it unless you have a really compelling reason like eliminating PMI or switching loan types.
Also, if you're planning to sell within the next two to three years, you likely won't recoup your closing costs through payment savings. Run the break-even analysis carefully.
The Quick Math
Take your closing costs and divide by your monthly payment savings. That tells you how many months until you break even. If it's longer than you plan to own the property, refinancing doesn't pencil out.
For example: $6,000 in closing costs ÷ $200 monthly savings = 30 months to break even. If you might sell in two years, you'd lose money on this deal.
Wondering if refinancing makes sense for your situation? Let's run your numbers and give you a straight answer.
