2% rule in refinance

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I am about to refinance for the first time. In the process I heard the term 2% rule. What is it actually?

Samantha · Posted: Sat Dec 10, 2005 5:03 pm Post subject:

Hi Brenda,

2-percent rule is a thumb rule to determine whether it is going to be a good decision from financial side to refinance the mortgage.

As per this rule, if your rate on the mortgage is reduced by at least 2% then only you should refinance to get a benefit.

God bless you.

For MortgageFit,
Samantha

jerry · Posted: Sun Dec 11, 2005 8:35 pm Post subject: RE

Hi,

Experts suggest a 2-2-2 rule of thumb to determine whether or not refinancing would pay off. Refinancing would make sense if you have stayed in your house for 2 years, planning to stay there for another 2 years and the new rate is 2 points lower than your mortgage rates at present. This formula may not apply always because even a drop of 1% point from the present rate will make the refinancing attractive.

According to banking sources when the earning potential of your assets are more than the cost of financing, then you should consider a mortgage that minimizes your monthly payment. This way you can increase your cash flow for investing. It will be a mistake if you automatically refinance with your existing lender without considering other. So it is advisable that you discuss your alternative with a mortgage advisor.

Thanks,
Jerry

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