Should You Refinance Your Mortgage?

If you’ve owned your home for a few years, a lot may have changed since you bought it. Your finances, your home’s value and the mortgage market have all likely moved.

That doesn’t automatically mean you should refinance. But it may be a good time to take a fresh look at your mortgage. Refinancing replaces your current loan with a new one, so there are costs and trade-offs to weigh. The goal isn’t just a lower rate. It’s finding out whether a new mortgage better fits your finances and goals.

Jump to a question:

What does it mean to refinance a mortgage?

Refinancing replaces your current mortgage with a new loan, often with a different rate, term or balance.

Homeowners refinance for different reasons. The right strategy depends on what you want to accomplish:

Do mortgage rates have to drop 1% for refinancing to make sense?

Not necessarily. Rules of thumb like “wait for a 1% drop” don’t fit every homeowner’s situation.

A better approach is to compare your current mortgage with a potential new one, including refinancing costs and how long you expect to keep the loan.

Even a lower rate isn’t automatically the better choice if the refinance has high costs or adds many years to your repayment. Your break-even point and total cost tell you more than the rate alone.

Should I refinance now or wait for rates to fall?

Start with today’s numbers. If refinancing meets your goal now, it may be worth exploring.

Trying to time mortgage rates perfectly is difficult. Whether your goal is a lower payment, a shorter term or access to equity, a Mortgage Loan Originator can show you what refinancing looks like right now.

If the numbers don’t work yet, you’ll know the rate or payment that would make refinancing worth it later. Just like buying a home, the rate isn’t the whole story.

How do I know if refinancing will save me money?

Start by calculating your break-even point: how long it takes your monthly savings to cover the cost of refinancing.

A simple break-even calculation divides your refinancing costs by your monthly savings:

If you plan to stay in your home well past your break-even point, refinancing may make more sense. But don’t stop there. Compare the remaining cost of your current loan with the full cost and term of the new one. A lower monthly payment doesn’t always mean lower total costs if you’re stretching repayment over many more years.

Does refinancing restart my 30-year mortgage?

It can, but it doesn’t have to. You may be able to choose a term that fits your goals.

If you’re several years into a 30-year mortgage and refinance into a new 30-year loan, you start a new repayment schedule. That may lower your monthly payment, but it also extends how long you’ll be paying.

Extending your term can mean paying more total interest, even with a lower rate. Ask your Mortgage Loan Originator to compare different term options so you can see both the payment savings and the long-term cost.

How much does it cost to refinance?

Refinancing usually comes with closing costs, commonly estimated at about 2% to 6% of the new loan amount.

Costs can include lender charges, appraisal fees, title fees, recording fees, prepaid interest and escrow deposits, depending on your loan. The actual amount varies by lender, loan type, location and other factors.

Your Loan Estimate will show the costs for your specific refinance, so you can compare offers side by side.

Can I refinance without paying closing costs upfront?

Possibly, but “no upfront cost” doesn’t mean free.

Compare the entire loan, not just how much cash you need at closing.

Can I refinance to lower my monthly payment?

Possibly. Your new rate, loan balance and term all affect your new payment.

If a lower monthly payment is your goal, ask your Mortgage Loan Originator to compare your current mortgage with a few refinancing scenarios.

Keep in mind that a lower monthly payment and greater long-term savings aren’t always the same thing.

What is a cash-out refinance?

A cash-out refinance replaces your mortgage with a larger loan and gives you part of the difference in cash.

Homeowners often use a cash-out refinance to tap into the equity they’ve built, subject to eligibility and equity requirements. The key question isn’t only “How much can I access?” It’s also “What does this do to my payment, my balance and my total borrowing costs?”

It can help to compare a cash-out refinance with other ways to use your equity:

Can refinancing help me pay off my mortgage sooner?

It may. Refinancing into a shorter term can help you pay off your home faster and potentially reduce total interest.

A shorter term usually means a higher monthly payment, so make sure the new payment fits comfortably in your budget before you commit.

Does my credit score matter when I refinance?

Yes. Just like when you bought your home, your credit can affect your refinance options and terms.

Your income, debts, home equity and loan type also influence what’s available to you. Check where your credit stands before you apply, and avoid major financial changes, like opening new accounts, while your refinance is in process.

Do I need an appraisal to refinance?

Sometimes. It depends on your loan program and transaction.

If an appraisal is required, your home’s current value matters because it helps determine your available equity and your loan-to-value ratio. Your lender will let you know if your refinance needs one.

What documents do I need to refinance?

Most lenders will ask for information about your income, assets, debts, insurance, current mortgage and property.

Exact requirements vary by loan program and your situation, but it helps to have information ready in these areas:

Getting organized early can help your refinance go more smoothly.

What should I compare before I refinance?

Look at the full picture, not just the interest rate.

Ask your Mortgage Loan Originator to walk through these side by side:

The lowest advertised rate isn’t always the best option for every homeowner.

Is refinancing worth it?

It depends on your goals. The better question is “Would refinancing put me in a better financial position?”

For one homeowner, refinancing means a lower monthly payment. For another, it means paying off the home sooner. Someone else may want to access equity or trade an adjustable rate for the predictability of a fixed rate.

A USA Mortgage Loan Originator can review your current mortgage, your goals and your options to help you decide whether refinancing makes sense for you.