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When to Refinance
Since interest rates are constantly changing, a good rate five years ago may not be a good rate today. So it's important to be up to date on rates and the terms of your mortgage. Consider how refinancing your current mortgage could get you a lower interest rate and might even change your term from 30 to 15 years to build equity - and own your home sooner! All you need to do is simply pay off your original mortgage with the new money you borrow!
We're making the process of refinancing easier! You now have the option of closing your mortgage online and over the phone. You may want to consider refinancing for one of these reasons:
- Benefit from lower interest rates Opens a new window – which reduces your monthly payment and often the overall cost of your mortgage
- Consolidate outstanding debt – for example, combine a first and second mortgage into a single new one
- Reduce the term of your loan – cutting your total cost
- Cash-out refinance – use the equity in your home to finance a major expense, such as a child's education
Will refinancing really save me money?
Refinancing doesn't always come cheaply - although you may be able to save on some refinancing costs by going to the same lender who provided your original mortgage - especially if it's one that charges few or no fees. You'll probably recognize many of the costs, since they're the same ones you may have paid when you got your original mortgage.
Depending on the terms of your existing mortgage, you may also owe a prepayment penalty when you refinance. Some states forbid prepayment penalties, but the rest don't. It goes without saying that refinancing only pays off if you recoup the costs. That means you should be planning to stay in the home you're refinancing long enough to recover the upfront fees.
By one rule of thumb, it usually makes sense to refinance if you can get an interest rate at least two percent lower than the rate you're currently paying. But if you find a lender with no application fees and low closing costs, it may be worthwhile to refinance with a drop in rates of as little as one percentage point. Ask yourself these questions if you're wondering whether it's the right time to refinance:
- How many years remain on my current mortgage?
- How long do I plan to stay in my house?
- How much lower will my monthly payments be?
- How much will I pay in upfront refinancing costs?
If you're thinking about refinancing a large mortgage, you may be able to make up the cost of borrowing more quickly because of the savings you realize on your reduced monthly interest payments.