I’ve just been offered a juicy deal to refinance my $580K fixed-rate mortgage at a very low rate — should I jump on it ASAP?

How much could a refinance loan save you?

The decision to refinance or not should ultimately come down to one big question: Will it save you money? You want to consider the impact of refinancing on both your monthly payments and on your total costs over time.

If you obtained a loan in the last few years, there's a good chance that you could reduce both of these costs by refinancing. Since your loan is relatively new, you aren't going to extend your repayment period by much if you refinance — which is important, since pushing back your debt-free date means paying interest for a longer period. You may also be able to drop your rate a great deal.

If you have a $580,000 30-year fixed-rate mortgage at 7.25% that you took out two years ago and you can refinance to a loan offering 6.25%, you could reduce your mortgage payments by around $423 per month and save $62,712 in interest over the life of the loan. That seems like a no-brainer.

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Considerations before you refinance

Before you jump into refinancing, there are a few key things that you need to consider.

First, there are closing costs. You'll typically have to pay anywhere from 2% to 5% of the balance of your loan when you refinance. This goes to things like lender fees, a new appraisal and title insurance.

If you have to pay several thousand dollars up-front, it's going to take you time to make back that money. If you move before the lower monthly payment saves you enough to cover closing costs, you'll end up worse off. For example, if your closing costs were 2% of your $580,000 loan, it would take 29 months to break even.

You'll also want to think about whether rates are going to fall further. The Federal Reserve has made clear it wants to keep reducing rates into 2025. If you refinance now, you'd be locking in at today's rates. If you wait a few months, you might be able to reduce your borrowing costs even more.

Indeed, you could always refinance again if rates keep falling — but, remember, you'd have to pay closing costs each time, which becomes very expensive. Some lenders also won't refinance if your current loan isn't seasoned which means you must have had it for around six months or so.

Before jumping on a great offer, consider these issues. If you plan to move soon or believe rates will continue to decline, refinancing now could be a big mistake.

Even if you decide to save on your mortgage with a new loan, it’s important to shop around and compare offers from different lenders — don't settle for the first offer. Look carefully at interest rates and terms, like whether you’ll need to pay points to lower your rate, or if there are prepayment penalties or high fees.

The choice to refinance is a big decision, so thinking it through, considering all your options and trying to get the timing right is well worth the effort.