Think about all of your options before you make your decision.
For lots of homeowners, refinancing is an opportunity to get a lower rate, tap into home equity, and much more. However, several factors play into refinancing your home, and it’s important to fully understand the process, and evaluate if refinancing is right for you.
Pro: Most likely you can lock in a lower interest rate.
Lots of things change in the time between your initial home purchase and now: your financial situation, the state of the market, and your home’s value. A lower interest rate on your mortgage means smaller monthly payments, and more of your payments going toward paying off the principal of your loan.
Con: Depending on your current rates, the savings may be minimal.
There’s no guarantee just how much you’ll save if you refinance your home. If your financial situation hasn’t changed much since you first took out your loan, you may not see a large change in interest rate or monthly payments. There are often fees associated with refinancing, and it’s important to weigh just how much you’re willing to spend, verses how much money you’re saving.
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Pro: This is a great time to move a 30-year term to a 15-year term.
During the life of a 30-year loan, you’ll pay more on interest. Refinancing at a time when rates are low, not only switches your loan to a shorter term, but can help you save money on interest. Plus, paying off your loan quicker, means you’ll be debt-free faster, even if your monthly payments don’t change.
Con: Refinancing takes time.
Refinancing your home is not something you can do in a day. It takes a lot of resources, time, and money, to secure a lower rate. This can be taxing on your life, especially if you don’t see a large change in payments or interest.
Pro: You might be able to pull cash out of the equity you’ve built.
As you’ve owned your home, made improvements on it, and paid off your mortgage over the years, you’ve built up a stockpile of equity tied to your home. Refinancing can provide access to some of that equity, giving you a safety net of money.
Con: There are fees associated with refinancing.
There are costs associated with refinancing. It’s important to evaluate your budget, and see if a refinance is the right decision and how much money you’d save.
We’re here to help.
Refinancing can be a wise decision, and can allow you to lower your monthly payments, or get a shorter loan term. However, it’s important to evaluate both sides of refinancing, and seeing if it’s right for you. With our expert staff, we can help guide you through the decision-making process and find what is right for you. Contact us at (800) 332-0190 or visit our Central Bank Mortgage Center for more information!
FAQs
You may end up in more debt
And if you plan on refinancing so you can pay off high-interest debt, have a clear plan to avoid overspending in the future: "One of the downfalls that I've seen is that folks will have all of this new disposable income, from a lower rate and/or longer terms," says English.
What is the downfall of refinancing? ›
A longer-term loan could result in lower monthly payments, but higher overall costs. For instance, if you have 10 years left to pay on your current loan and you refinance to a 30-year loan, you could end up paying more in interest overall to borrow the money and have 20 extra years of mortgage payments.
Is it ever a good idea to refinance? ›
For most borrowers, the ideal time to refinance is when market rates have fallen below the rate on their current loan. If you want to refinance now, calculate the break-even point so you'll know exactly how long it'll take to reap the savings.
Is there a con to refinancing? ›
The main benefits of refinancing your home are saving money on interest and having the opportunity to change loan terms. Drawbacks include the closing costs you'll pay and the potential for limited savings if you take out a larger loan or choose a longer term.
Does refinancing hurt your score? ›
Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.
What happens if I refinance my house? ›
Refinancing the mortgage on your house means you're essentially trading in your current mortgage for a newer one – often with a new principal and a different interest rate. Your lender then uses the newer mortgage to pay off the old one, so you're left with just one loan and one monthly payment.
Can you lose your house if you refinance? ›
You have a greater risk of losing your home: A cash-out refinance increases your mortgage balance. Failing to repay the loan means you could wind up losing it to foreclosure.
Why do I owe more after refinancing? ›
For example, when refinancing your mortgage, there will be closing costs to be paid as part of the process. If you opt to have the closing costs rolled into the new mortgage, you're augmenting the mortgage balance — the amount you owe — and thus diluting your equity — the amount you own.
How much does refinancing cost? ›
Refinance closing costs commonly run between 2% and 6% of the loan principal. For example, if you're refinancing a $225,000 mortgage balance, you can expect to pay between $4,500 and $13,500. Like purchase loans, mortgage refinancing carries standard fees, such as origination fees and multiple third-party charges.
Does it cost a lot to refinance? ›
According to Freddie Mac, average refinance closing costs are about $5,000. But don't put too much weight on this number: The cost to refinance your mortgage could be lower, or it could be a lot higher depending on the loan amount and other factors.
Current mortgage and refinance interest rates
| Product | Interest Rate | APR |
|---|
| 30-Year Fixed Rate | 7.34% | 7.39% |
| 20-Year Fixed Rate | 7.24% | 7.29% |
| 15-Year Fixed Rate | 6.86% | 6.93% |
| 10-Year Fixed Rate | 6.80% | 6.88% |
5 more rowsMortgage Rate Projection for 2024
As inflation slows and the Federal Reserve is able to start cutting the federal funds rate, mortgage rates are expected to trend down as well.
How to decide when to refinance? ›
An often-quoted rule of thumb says that if mortgage rates are lower than your current rate by 1% or more, it might be a good idea to refinance.
Is it bad to refinance your car? ›
Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.
Is it a bad time to refinance a car? ›
While interest rates aren't at historic lows anymore, other market factors like car values could make this a good time to refinance your car. However, whether it's a good time to refinance heavily depends on your credit situation. If you can get a lower interest rate, it's a great time to refinance.
