Refinancing Your Mortgage: When Does It Make Sense?

What is Mortgage Refinancing?

Refinancing means replacing your current mortgage with a new one, typically to get better terms, lower payments, or access to equity. It's a major financial decision that requires careful analysis.

When Refinancing Makes Sense

Lower Interest Rates

The most common reason to refinance is to get a lower interest rate. A 1% rate reduction on a $300,000 loan can save $200+ per month.

Change Loan Terms

• 30-year to 15-year: Pay off faster, save on interest
• 15-year to 30-year: Lower monthly payments
• ARM to Fixed: Lock in stable payments

Access Home Equity

Cash-out refinancing lets you borrow against your home's equity for:

• Home improvements
• Debt consolidation
• Education expenses
• Emergency funds

Calculating Break-Even Point

Before refinancing, calculate your break-even point:

Break-even = Closing costs ÷ Monthly savings

Example: $5,000 closing costs ÷ $200 monthly savings = 25 months

Refinancing Costs

Typical closing costs include:

• Application fee: $300-500
• Appraisal: $300-500
• Title insurance: $1,000-2,000
• Escrow fees: $200-500
• Recording fees: $50-200
• Points (optional): 1% of loan amount

When NOT to Refinance

• Planning to move within 2-3 years
• Break-even period is too long
• Credit score has dropped significantly
• Home value has decreased
• Current loan has prepayment penalties

Refinancing Strategies

Rate and Term Refinance

Most common type - get better rate or terms without cashing out equity.

Cash-Out Refinance

Borrow more than you owe to access equity. Higher rates than rate-and-term refinances.

Streamline Refinance

Simplified process for existing FHA, VA, or USDA loans with minimal documentation.

Steps to Refinance

1. Check your credit score and improve if needed
2. Calculate your home's current value
3. Shop around with multiple lenders
4. Compare loan estimates carefully
5. Lock in your rate when ready
6. Complete the application process
7. Close on your new loan

Use our refinance calculator to compare your current mortgage with refinancing options and see potential savings.