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From: koch@sousa.DEC (Kevin Koch LTN1-2/B17 DTN229-6274)
Newsgroups: net.invest
Subject: The refinancing rule
Message-ID: <1572@decwrl.DEC.COM>
Date: Fri, 7-Mar-86 16:04:45 EST
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Posted: Fri Mar  7 16:04:45 1986
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     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.