When interest rates were falling, did you wonder as I did if it was the right time to refinance? I remember hearing a rule of thumb, if the interest rate had fallen by over 1% and you expected to be in your home for more than 5 years, it would most likely make sense to refinance. As an economist this answer was never precise enough for me. So I should have sat down and calculated the exact rate at which I should refinance, but the procrastinator in me always put it off. Now thanks to my good friend Sumit Agarwal, I don't need to do any heavy lifting or mathematical computation.
Sumit and his co-authors have a nice little calculator up at the NBER website.
Optimal Time to Refinance Calculator
Wow. Rates never fell low enough for me to refinance, so it looks as though my procrastination paid off. Well, it saved me the time it would have taken to calculate the optimal rate anyhow.