When Should You Consider Refinancing Your Mortgage?

Estimated reading time: 3 minutes

Refinancing your current mortgage is a major financial decision, much like taking out a new mortgage. Before you invest money and time, it’s important to determine if this option is right for you. To help you feel more confident, let’s go over four situations when a refinance would make sense.

What is a Refinance?

Put plainly, a refinance occurs when a borrower replaces their existing mortgage with a new one. This new loan may have a different interest rate or loan terms, but not always. A borrower can refinance with their existing lender or finance with a different one.

So, When Should You Consider Refinancing?

When You Want to Shorten Your Loan Term

Your mortgage term measures the length of time you have to pay back the loan. For example, a 30-year loan term would mean you have 30 years to pay off your mortgage’s principal, interest, taxes, and insurance.

Refinancing from a 30-year mortgage to something shorter, like a 15- or 10-year term, can help you save money on interest and pay down the principal loan amount more quickly. The more you pay down your principal, the more equity you’ll build.

When You Want to Convert Your Loan Term

An adjustable rate mortgage, also known as an ARM, is only fixed for an initial period before it fluctuates, which can lead to higher monthly payments. By converting your ARM to a fixed rate with a refinance, you can budget more efficiently and have the peace of mind that your payments won’t unexpectedly rise.

On the inverse, converting your fixed rate to an adjustable rate could be beneficial. In general, ARMs have lower rates than fixed terms because of their fluctuation. An ARM’s rate won’t adjust until after a few years, making this refinance a good option for borrowers who plan on moving before the fixed period ends.

When You Want to Consolidate Debt

A cash-out refinance is a unique way to access your home equity as money in your pocket. You’ll take out a new mortgage that has a larger amount than your existing loan. Once closing costs are completed and you’ve paid off the previous balance, you receive the remaining funds in cash. While you’re free to use the money for whatever you need, experts recommend using it for home renovations, school costs, or to consolidate high-interest debt, like credit cards.

When Rates Have Decreased

As the Federal Reserve begins to make cuts, you may notice interest rates dropping in coming months. If rates are 1-2% lower than what you’re paying now, a refinance may be an opportunity to save money. Use our mortgage calculator to see how much you could potentially save with a lower rate.

Helping You Navigate Home Financing

Your home financing success is our top priority. That’s why we pair our borrowers with experienced Licensed Loan Originators to assist them through their mortgage journey. Ready to find out how we can help you achieve your home financing success? Contact us today!