When Should You Refinance?

There are several reasons to refinance your home mortgage, and knowing when is the right time depends on your particular situation.

Lower Your Monthly Payments

If interest rates drop low enough below your current rate, you could save money both on your payments as well as on the overall amount of interest you pay over the life of the loan.

Change the Term of Your Loan

If you feel you can afford a higher monthly payment, you may consider refinancing to decrease the term of the loan. A shorter-term loan can help you build equity in your home quicker and save you a significant amount of money over the life of the loan.

Switch Loan Types

If your current loan is an adjustable rate mortgage (ARM) and your rate is about to adjust to a higher one, or you are just tired of the uncertainty of an ARM, it may be time to refinance to a fixed rate loan. Your monthly payment may increase, but if interest rates are on the rise, your ARM loan could end up climbing to a higher payment in the long run.

Tap the Equity on Your Home

You build equity in your home by paying down the principal on your loan or having the value of your house increase from the time you bought it. If you have enough equity in your home, you may be able to refinance to get extra cash out. You may want to do this if you need money to consolidate debts, pay for your children’s college, perform home improvements or make other large purchases. Depending on the interest rate you can get, it may reduce you overall monthly payments if you use the money to pay off other debts.