When Does It Make Sense to Refinance a Mortgage?
4 Goals of Home Refinancers
Refinancing your current loan to a lower interest rate or different term could save you money. To decide if refinancing is the right decision for you, it’s important to consider the terms of your current loan, new life events or changes in market conditions.
Get a Lower Interest Rate
If interest rates have gone down by 1 or 2 percentage points, refinancing could save you money over the life of your loan. You also might be able to qualify for a better rate if your credit score has improved.
Tap Into Your Home’s Equity
If your home is valued higher than your current mortgage balance, you may decide that a cash-out refinance makes sense. Homeowners typically use the cash they take out to pay for renovations, consolidate debt or cover other big expenses such as college education. Keep in mind you’ll be paying closing costs and fees for your new loan, so weigh your options carefully.
Convert to a Fixed Rate
If you have an adjustable rate mortgage (ARM), you may want to lock in a fixed rate and enjoy rates that don’t change over time. This is a good option if interest rates are expected to rise or if you're looking for stability for your budget.
Shorten the Term of Your Loan
If interest rates have gone down and you decide to pay off your mortgage sooner than your current terms, you may want to refinance for a shorter loan period. For example, if you have a 30-year loan, you may want to refinance to a 15-year loan to save money on interest.
