Refinancing your home loan can help you save money and adjust the term of your mortgage – whether that’s paying off your loan sooner, lowering your monthly payment, or switching from an adjustable to a fixed rate. Common questions we get are “When is it time to refinance?” and “Isn’t refinancing a bad thing?” The answers depend on each borrower’s needs. As a result, we are going to walk through some examples of when it makes sense to refinance and the main factors to consider when exploring a refinance.
The right time depends on two things: your personal financial situation and current mortgage rates. Refinancing makes sense when it can save you money, eliminate extra costs, or allow you to access equity.
Common misconceptions about refinancing:
I need to decrease my interest rate by at least 1.00% of my current rate.
If rates are lower now than when you first took out your mortgage, refinancing can reduce your monthly payment and the total interest you’ll pay. If you can drop your interest rate even just 0.25% through a no-cost refinance, it can be worthwhile to do so and save tens of thousands of dollars over the term of the mortgage.
Refinancing resets my loan term.
The interest rate is an annualized rate, and the amount of interest paid is based on the amount of principal balance owed. The initial amortization schedule you get with a new mortgage assumes you are making the scheduled payments, but you can pay more each month to pay down the principal balance quicker. In fact, if you refinance to a lower rate but continue paying your previous mortgage payment amount, you can cut years off of your mortgage.
If you’re currently paying mortgage insurance (MI), refinancing may also help remove it once you have at least 20% equity, lowering your monthly payment even more.
The only reason to refinance is to lower your interest rate.
Refinancing gives you the chance to switch to a loan that better fits your life today. For example, if you have an adjustable-rate mortgage (ARM), refinancing into a fixed-rate loan locks in your monthly payment and protects you from future rate increases.
Another example is a cash-out refinance, which lets you turn the equity you’ve built into cash. Homeowners often use this option for home improvements, education costs, or debt consolidation. Because mortgage rates are usually lower than credit cards or personal loans, it can be a smart way to fund big expenses.
Finally, if you can afford higher payments, refinancing into a shorter-term loan helps you pay off your mortgage faster, build equity quicker, and save thousands in interest. If money is tight, refinancing to a longer-term loan can lower your monthly payment by spreading it out over more years. Keep in mind, this usually means paying more interest over time.
Refinancing makes sense when it improves your finances—like lowering payments, removing mortgage insurance, pulling cash out, or locking into a fixed rate. A cost-benefit analysis can identify if the savings are worth the costs and match your long-term goals.
To see if refinancing makes sense for you, call us at (760) 930-0569. Our Mortgage Loan Originators will walk you through your options, answer questions, and help you feel confident about your next step.
