The old rule of thumb is that you should refinance your home if interest rates fall more than 2 points below your existing mortgage rate. That’s because refinancing usually involves most of the same closing costs (loan origination fee, prepaid interest, etc.) as the original loan. For anything less than 2 percent, the savings on your monthly mortgage payment might not be significant enough to be worth your while.
Be cautious, however, of lenders offering 100 percent or 125 percent home equity loans–their rates are often markedly higher than traditional lenders. In addition, any amount you borrow that is above the market value of the house is NOT tax deductible. Check with your tax professional.