Is it a Good Time to Refinance? Here Are 6 Ways to Tell

Blog posted On February 16, 2024

Refinancing is a term that gets thrown around in conversations about mortgages and loans, but what exactly does it entail? This post will dive into the ins and outs of refinancing and explore whether or not it could be a good choice for you.

What Is a Refinance?

In simple terms, refinancing refers to the process of replacing an existing loan with a new one, typically with more favorable terms. This can apply to various types of loans, but it's most commonly associated with mortgages.

Reasons To Refinance

How do you know when to refinance? Here are a few of the common reasons that homeowners choose to refinance.

  1. Grab A Lower Interest Rate

One of the primary motivations for refinancing is to secure a lower interest rate. By doing so, homeowners can reduce their monthly mortgage payments and potentially save thousands of dollars over the life of the loan. Speak with a seasoned loan officer to stay up to date on market trends and interest rate changes.

  1. Consolidate High-Interest Debt

Refinancing also provides an opportunity to consolidate high-interest debt, such as credit card balances or personal loans, into a single, more manageable payment with a lower interest rate.

  1. Get Rid of Private Mortgage Insurance

For those who initially purchased a home with a down payment of less than 20%, refinancing can be a way to eliminate private mortgage insurance (PMI) once enough equity has been built up in the home.

  1. You’ll Be in The Home for A Long Time

If you plan to stay in your home for the long term, refinancing can make sense as a strategic financial move, especially if it helps secure a more stable or lower monthly payment.

  1. Change Your Loan Term

Refinancing also offers the flexibility to change the duration of your loan term. For example, you might switch from a 30-year to a 15-year mortgage to pay off your home faster and reduce overall interest costs.

  1. Pay For Renovations

Homeowners can use the equity built up in their homes to finance renovations or improvements through a cash-out refinance, leveraging the value of their property to invest in its upkeep or enhancement.

Signs You Shouldn’t Refinance

While refinancing can offer significant benefits, it's not always the right move for everyone. Here are some signs that refinancing may not be the best option for you:

?          You’re trying to save for a new home: If you're planning to move in the near future, the costs associated with refinancing may outweigh the potential savings.

?          You need a longer-term loan: Extending the term of your loan through refinancing may result in lower monthly payments but could end up costing you more in interest over time.

?          You just bought your home: Refinancing shortly after purchasing a home may not be financially advantageous, as you may not have built up enough equity to justify the costs.

?          You want to splurge on other luxuries: Refinancing to access cash for non-essential expenses like vacations or luxury purchases could put your financial stability at risk.

?          You haven’t met other financial goals: Before forking out the costs of refinancing, it's essential to prioritize other financial goals, such as building an emergency fund.

Refinance Costs and Savings

How much does a refinance cost?

Refinancing typically incurs various fees, including closing costs, appraisal fees, and loan origination fees. The cost of each of these aspects can depend on the home’s location, your loan servicing company, and/or the current economy. It's essential to factor in these expenses when evaluating the potential savings of refinancing. Many mortgage lenders offer refinancing options that allow you to roll the closing costs into the principal balance on your mortgage. While this is a great option upfront, it does mean that your loan will accrue more interest over time. It’s crucial to discuss all options with your loan officer to ensure you are making the most financially wise decisions when refinancing.

How much could you save?

The amount you could save through refinancing depends on various factors, including your current interest rate, the new interest rate, loan term, and closing costs. You’ll start to see the benefits of your refinance once you break even on the closing costs.

Here’s an example:

If you refinance to a $250,000 loan and the closing costs are 2% of the loan amount, you’d owe $5,000 at closing. If you save around $200 per month from the refinance, it’ll take just under two years to break even and reap those benefits. Online calculators and consultations with mortgage professionals can help estimate potential savings based on your specific situation.

Next Steps

In conclusion, refinancing can be a valuable financial tool for homeowners looking to reduce their monthly payments, consolidate debt, or access equity for home improvements. However, it's crucial to carefully consider your individual circumstances and financial goals before deciding whether refinancing is the right move for you. By weighing the potential benefits against the costs and considering alternative strategies, you can make an informed decision that aligns with your long-term financial objectives.


If you have refinancing questions or think you’re ready to start your refinance process, reach out to a loan officer today.