Should I Refinance My Mortgage

Refinancing home mortgages isn’t as tedious as taking out a mortgage for the first time. However, it’s important to weigh and understand the benefits before proceeding.

Benefits of Home Refinancing

Here are some common reasons that homeowners would refinance their home:

• Rate and term refinance - taking advantage of lower interest rates and monthly payments

• Switching from a fixed rate to an adjustable rate mortgage, or vice versa

• Shortening, extending, or changing the loan repayment term

• Cash-out refinance or accessing home equity

• Eliminating private mortgage insurance payments

Consider your break-even point if your goal is to save money through refinancing.

To determine your break-even point, divide your total loan closing costs by your monthly savings with the new loan. For example, if you save $50/month by refinancing, and the loan came with $5,000 in closing costs, it will take you 100 months, or about 8 years, to break even. If you don’t plan to stay in your current home for long, it may not make sense to refinance.

Determine your loan-to-value (LTV) ratio if cash-out refinancing is your goal. Your LTV ratio is how much you still own on the home versus what it is worth. Lenders may cap the amount of equity that you can withdraw based on your LTV, so it’s important to know this amount early in the process. You may want to wait until you’ve accumulated more equity if refinancing doesn’t offer you as much cash as you were initially hoping for.