Are you asking yourself, "should I refinance my home?" You aren't alone. Thousands of homeowners each year wonder if refinancing their home mortgage makes sense for them. Refinancing your existing mortgage can be a money-saving move, but deciding when to refinance can be based on specific needs, such as:
- Refinancing to lower your monthly payment or rate
- Refinancing to consolidate debt
- Refinancing to make a major purchase
When should I refinance my mortgage?
Refinancing your mortgage could save you a considerable amount of money, shorten the time until your loan is paid off, or increase your cash flow. This is especially true if you bought your home during a time when rates were exceptionally high or have an adjustable rate mortgage (ARM).
However, timing is important when you’re asking yourself, “Should I refinance my mortgage?” Refinancing comes with a new set of closing costs, and sometimes the right thing to do is to continue paying on your existing loan. Other times, you might need cash for a major purchase, and accessing your home equity can make good financial sense.
In the end, you need to determine what your goal is before deciding on a solution. Learn more about finding the best time to refinance your home.
Should I refinance to lower my payment?
For many homeowners, the primary motivation is to lower their monthly payments or obtain a lower rate. This can be accomplished by refinancing if the rate is significantly lower or if a loan term restructure is practical. The question is, how do you know if you should refinance?
You can expect closing costs to typically be two to five percent of the loan amount. What's more, these are the costs for someone with what is considered very good credit; lower credit scores could mean higher upfront costs.
When considering a refinancing, it’s essential to learn about current refinance rates, loan terms, and closing costs. How many months will it take you to break even, considering your upfront costs? Are you planning to stay in your home long enough to recoup your investment? These are important considerations – knowing as much as you can about the market and your financial situation helps you make an informed decision and hopefully the right decision for you.
Should I refinance to consolidate debt?
If you have debts with high interest rates, there may be an option to refinance and withdraw some equity from your home to pay them off. Likewise, if you already have a home equity loan in addition to your first mortgage, refinancing to combine them into one fixed-rate mortgage loan could make sense.
Should I refinance to make a major purchase?
Another instance when you might consider a refinance is when you need a large sum of money. A cash-out refinance can give you access to cash at closing to finance a major purchase or expenditure. Refinancing could provide a relatively inexpensive way to borrow.
Consider all of the variables before deciding whether to refinance your mortgage. As a tool to help with the decision, use our mortgage calculator to estimate your payments with a mortgage refinance. Simply input the costs and terms, and you can see at a glance if now is the right time to refinance.