Is Refinancing Right for You? 5 Smart Reasons to Refinance Your Home Now

Refinancing your mortgage can be a smart financial decision, but it may not be the right time or choice for everyone. Whether you’re looking to lower your monthly payments, access home equity, or adjust your loan terms, understanding the benefits and drawbacks is essential before making a move.

Why Would I Refinance my Mortgage?

When you refinance, you’re replacing your current home loan with a new one, often to benefit you in the long run. Typically, homeowners refinance to:

1. Get a Lower Interest Rate
   If rates have dropped since you bought your home, refinancing can reduce your monthly payment and save thousands over the life of your mortgage.
2. Shorten or Lengthen the Loan Term
   Switching from a 30-year to a 15-year mortgage helps pay off your home faster and save on interest. Some homeowners may opt to refinance to lower their monthly payments by choosing another 30-year loan, while still benefitting from a lower interest rate.
3. Switch From an Adjustable-Rate Mortgage (ARM)
   By refinancing to a fixed-rate loan, homeowners will get stability in payments for the life of a loan or lock in a rate to provide peace of mind and shield against future hikes.
4. Access Home Equity
   Dreaming of adding another bathroom, a bigger kitchen, or another bedroom for your growing family? Cash-out refinancing can tap into the equity you’ve built into your home and borrow against the value of your home, using the funds for improvements. Additionally, the renovations you make can boost resale value, making the investment worthwhile.
5. Consolidate Debt
   Combining high-interest debt (like credit cards, personal loans, or medical bills) into one, lower-interest, predictable mortgage payment may be beneficial for some. This strategy works because mortgage interest rates are typically much lower than unsecured debt rates.

Key Questions to Discuss Before You Refinance

• How Long Will You Stay in the Home?
  Refinancing comes with closing costs, which can dip into your savings or take some time to recoup through monthly savings. If you plan to move in a year or two, refinancing may not make sense for you right now.
• What is Your Break-Even Point?
  A break-even point is the time it takes for your monthly savings to cover the upfront costs of refinancing. If you sell or move before this point, you may be losing out on money. To calculate your break-even point, you can take estimated closing costs divided by your monthly savings.
  An Example: $5,000 in closing costs ÷ $200 monthly savings = 25 months to break even. In this example, if you’re thinking of selling or moving before 25 months (or just over 2 years), refinancing would not be advantageous.*
• Do You Have Enough Equity?
  Most lenders require at least 20% equity for the best rates and to avoid private mortgage insurance (PMI). To calculate equity, take your home value subtracted by the loan balance, then take that number divided by your home value.
  An Example: The Smith’s home is worth $300,000 and their loan balance is $220,000. They have 26.6% equity, which is good for refinancing. In another neighborhood, the Johnson’s home is worth $415,000, currently their loan balance is $370,000. They currently have 10.8% equity in their home. This means they may not get the best rate, they may be required to pay PMI, and they may not qualify for refinancing.*
• Can You Afford Closing Costs?
  Typically, closing costs range from 2% or 5% of the loan amount. If you can’t pay upfront, you may be able to roll them into the loan, however, that increases your balance and interest.

Steps to Refinance

1. Check your Credit Score
2. Compare rates or get notified when rates drop below yours
3. Calculate costs vs. savings
4. Gather Documentation
5. Apply and close

Refinancing can be a powerful financial tool – but only if it aligns with your goals. Whether you want to reduce monthly payments, pay off your mortgage faster, fund renovations, or consolidate debt, the right refinance strategy can make a big difference. Take time to weigh the pros and cons, calculate your break-even point, and consider how long you plan to stay in your home. When done thoughtfully, refinancing can be a smart move that saves money and provides peace of mind for years to come.

Ready to Take the Next Step?

*This is not a commitment to lend. Pre-approval is subject to certain conditions. Not all borrowers will qualify. *Examples are not based on real numbers or reflect real people.

Through our versatile home loan options, Choice can help you capture the pride of a new home. Our team of experienced home lenders specializes in everything from pre-qualification to your final payment. We’re here for you every step of the way.

Get Mortgage Rate Notifications