How to Know When It’s Time to Refinance

Refinancing is a pretty simple concept. It means you pay off your existing mortgage and replace that loan with a different one. Many borrowers reach life-stages where changing the terms of their mortgage makes sense. For example, many older homeowners look to shorten the term of their mortgage to eliminate payments after retirement, while younger homeowners may wish to switch from an adjustable rate mortgage (ARM) to a fixed rate to ensure consistency as they settle into a new lifestyle. Families who outgrow their current homes may choose to tap their home’s equity in order to renovate or add on to their current home. Couples who divorce need to revise the mortgage terms to remove the former spouse from the obligation. Sometimes, when children are preparing to enter college, parents may choose to tap their home’s equity to help finance new educational expenses.

There are pro’s and con’s to refinancing. The key is to remember that refinancing can cost between 3-6% of the loan’s principal and it requires the same paperwork (see Refinance Checklist), fees and evaluation of the property value (appraisal) that an original mortgage does. It’s important to ask yourself some questions before considering a refinance:

1 – How long to I/we plan to live in this house?

2 – Do I need to adjust my mortgage for short- or long-term reasons?

3 – Will refinancing reduce or increase my monthly payments?

4 – Do I have enough equity in my house to use it in a different way?

5 – How much will it cost me to refinance?

Still need help determining whether a refinance is right for you? A professional and knowledgeable licensed loan officer can help you “do the math” and explore the refinance options available so that you can understand the pros and cons of your unique situation.

Refinancing your home will either save you money or give you the flexibility to do more. Use one of our mortgage calculators to see what you might save.