When does it actually make sense to refinance my mortgage in Wisconsin?
Rob Miller explains the math behind refinancing in Wisconsin, including the break-even point, dropping PMI, and when to pull cash out.
Rob Miller, Branch Manager at MadCity Home Loans, answers one of the most common questions we get from Wisconsin homeowners.
When does it actually make sense to refinance my mortgage in Wisconsin?
You have probably heard the old rule of thumb: "Only refinance if you can drop your rate by at least 1%."
Forget that rule. It is outdated and often completely wrong.
Whether or not a refinance makes sense depends entirely on your specific financial goals and how long you plan to stay in the home. Here are the three main reasons I tell my clients it is time to refinance:
1. The "Break-Even" Math Makes Sense
Refinancing is not free. There are closing costs (usually wrapped into the new loan). The most important calculation is the Break-Even Point.
Take your total closing costs and divide them by your monthly savings. If it costs you $3,000 to refinance, but you save $200 a month, your break-even point is 15 months. If you plan to stay in the house longer than 15 months, the refinance is a smart financial move. Even a 0.5% rate drop can make sense if the math checks out.
2. You Have 20% Equity and Want to Drop PMI
If you bought your home with an FHA loan, or a Conventional loan with less than 20% down, you are paying Mortgage Insurance (PMI or MIP).
Home values in Madison and Dane County have skyrocketed over the last few years. If your home has appreciated enough that you now have 20% equity, we can often refinance you into a new loan that eliminates that mortgage insurance entirely. That alone can save you hundreds of dollars a month, even if your interest rate stays exactly the same.
3. You Need to Restructure Your Debt (Cash-Out)
Sometimes you refinance to take cash out of the equity in your home to pay off high-interest credit cards, do home renovations, or consolidate a divorce settlement. In this scenario, your mortgage rate might actually go up slightly, but if it eliminates $1,500 a month in 25% interest credit card payments, your overall financial picture improves dramatically.
Never guess on a refinance. Call my team, and we will run a customized Total Cost Analysis to show you exactly when you hit your break-even point.
Related Guide: Learn more about the potential traps of refinancing in our guide to Avoiding Wisconsin Refinancing Traps.