koch@sousa.DEC (Kevin Koch LTN1-2/B17 DTN229-6274) (03/08/86)
The "3% rule" people have asked about is actually more like a 2%
rule, and it answers the question,
How much do interest rates have to fall for it to be worth it
to refinance at the lower rate?
The answer depends on several assumptions:
1) You capitalize the refinancing costs.
1) Refinancing costs run about 4%. So you'll end up owing
104% of what you did when you started.
2) You will own the property for at least two or three years.
3) You continue to make the same payments, or invest the
monthly savings in another investment that has the same yield
as the new mortgage rate.
When you massage all these variables, you find that rates have to
drop at least 2% for refinancing to be worthwhile.