Refinancing your mortgage is a practical way to help make your home loan better achieve your financial goals. Depending on your situation, it could help you lower your payment, pay off your home sooner, or let you tap your home’s equity for other goals.
So how do you know when it’s the right time to refinance? Here are six signs to keep an eye peeled for:
1. Interest Rates Are Trending Downward
Lower interest rates are one of the main reasons homeowners refinance. If rates today are significantly lower than the rate on your current mortgage, you might be able to reduce the amount of interest you pay over time.
How significant? As a general guideline, refinancing may be worth exploring when rates are at least 0.5% to 0.75% lower than your current rate. Keep in mind that refinancing comes with closing costs and other expenses, so keep those in mind when comparing your potential savings before making a decision. Talking with a loan expert can help you with this.
2. Your Credit Score Has Improved
If your credit score has increased since you first purchased your home, you could now qualify for better loan terms. Refinancing allows you to take advantage of your improved credit profile and potentially lower your rate. This can make your mortgage more aligned with your current financial situation. Keep in mind that your credit score will need to have improved significantly (50+ points, depending on your credit tier) to see much of a difference here.
3. You Plan to Stay in Your Home for a While
Refinancing involves closing costs, so it takes time to reach your “break-even” point. That’s when your monthly savings have covered the costs of refinancing.
If you plan to stay in your home long enough to reach that point, refinancing could be a smart move. To estimate your break-even point, try our Refinance Calculator. It can help you determine whether refinancing makes sense based on your goals and timeline.
4. You Want to Pay Off Your Home Sooner
If your finances have improved and you want to build equity faster, refinancing into a shorter loan term can help. Moving from a 30-year to a 15-year mortgage typically increases your monthly payment, but it can reduce your total interest cost and help you pay off your home sooner. The monthly payment difference between a 30-year and 15-year loan is often not as big as people think it is! Check out our 15 vs 30 year mortgage calculator to run the numbers yourself.
5. You Want to Avoid A Jump In Your ARM Loan’s Monthly Payment
If you have an adjustable-rate mortgage (ARM) that is about to adjust and want to avoid a larger monthly payment, refinancing your loan could be your best bet. You can refinance your mortgage into a fixed-rate loan to keep your monthly payment more stable, or refinance into a new ARM. Again, talking to a loan expert will help you determine which options may be right for you.
6. You Want to Access Your Home’s Equity
If you’ve built equity in your home, a cash-out refinance lets you borrow against that equity. Many homeowners use this option to fund home improvements, education costs, or debt consolidation. Before choosing a cash-out refinance, review the potential costs and benefits with a mortgage expert to make sure it fits your financial goals.
The Bottom Line
As you can see, the best time to refinance your mortgage depends on a lot of factors, including your interest rate, credit profile, and how long you plan to stay in your home. If the timing is right, refinancing can be an effective way to make your mortgage better fit your life and goals.
If you’re ready to take the next step or learn more about your options, Mortgage Center is here to help with clear guidance and personalized support every step of the way. Contact us today!
