Is a Mortgage Refinance Right for You?

It is a good idea to review your financial situation periodically to see if there have been any changes that may affect your mortgage. With current mortgage refinance rates, you may be able to secure a lower interest rate for your mortgage – saving you money over the long run.

You can use our mortgage refinance calculator to work out numbers for your specific situation, or read on for general signs that refinancing your home may be the right move. 

You have 20 % or more equity in your home

As you pay down your mortgage loan each month, you build equity in your home. Your equity is the market value of your house minus the balance on your mortgage. Essentially, it measures how close you are to owning your home outright! Once you’ve built up at least 20% equity in your home you may be able to reduce or eliminate private mortgage insurance (PMI) by refinancing.

You plan on staying in your home for several more years

Take into consideration closing costs. If a lower interest rate decreases your monthly mortgage by (for example) $100, how many months would it take to pay off closing costs? If it’s longer than you intend on being in your home, it may not be the time to refinance.

Your mortgage lender can help you understand what closing costs would look like for your situation.

You have an adjustable rate mortgage (ARM)

Interest rates on adjustable rate mortgages can go up and down over the term of the loan. In a low-rate environment it may make sense to refinance and lock in the lower rate over the life of the loan. Getting your rate fixed can provide payment stability and help with budgeting.

You need to pay for a substantial one-time out-of-pocket expense

If you need to pay for medical bills, college tuition, or would like to make home improvements, you may want to consider a cash out refinance. This type of refinance lets you tap into the equity in your home to pay for immediate or future expenses.

If your debt-to-income ratio is near its maximum

Your debt-to-income ratio is the amount of your income each month that goes toward your rent or mortgage, credit cards, and other debt compared to how much you earn in total.  If your debt-to-income ratio is too high, it can affect your credit score. Refinancing your home may improve your credit score by freeing up additional income and lowering your monthly payments. A better credit score can help you get more favorable loan terms on a new car or credit card, for example.

If any of these situations apply to you, it may be beneficial to review your options. Contact your mortgage lender to have conversation about your finances and see if a mortgage refinance may be right for you.