Refinancing your mortgage means taking out a new home loan to replace the existing one, usually at a lower interest rate or with different loan terms. You can also borrow more than you currently owe on your mortgage and pocket the difference as cash to pay for a variety of expenses.
Each homeowner’s situation is different, but the potential benefits of refinancing your mortgage include:
- Lower Interest Rate
- Access to extra cash to finance a home improvement or other big expense
- Shorter loan term to pay off your mortgage faster
- Longer loan term to reduce your monthly payment amount
- Change to a different mortgage program, such as from FHA to Conventional or Adjustable Rate to Fixed
- Consolidate higher interest debt
If you’re wondering, should I refinance my mortgage, the answer will depend on your current situation and long-term goals. Mortgage refinance tends to be most popular when interest rates fall. However, if your credit score has improved since you bought your home, you may be able to qualify for a lower rate than you have now.
You will also need to have lived in your home for a certain length of time and have a certain amount of equity in your home before refinancing. Taking out a new mortgage loan does come with closing costs, so you should plan to stay in your home at least long enough to break even on savings from interest and closing costs paid. If you are planning to move in the next five years, for example, refinancing may not be for you.