When does it make sense to refinance?

I have heard some people say that you have to improve your interest rate by a full percent to make it worth it. Others say a 1/2 percent is enough to make it worth it. The fact of the matter is that there is more to it than just the percentage that you improve your rate. It's really quite simple actually. You just have to find out 2 things: 1. When is my break even point? (which is calculated by dividing the % cost of the refinance by the % improvement in the rate. For example if the closing costs are equal to 2% and you improve your interest rate by 1% than your break even point is 2 years.) and 2. How long do I plan on staying in the home? If your break even point is 2 years and you plan to stay in the home for at least 3 years than it is to your advantage to refinance. I recently refinanced a client who was planning on selling their home in one year. Because of this, it didn't make any sense to do the refinance if they paid closing costs. We were able to structure their new loan so that they still lowered their interest rate without paying any closing costs. The moral of the story is that everybody's situation is different and a good loan officer should be able to help you understand why it does or does not make sense to refinance.