When to Refinance a Home Mortgage: Is Now a Good Time?

When you can lower your interest rate enough to cover closing costs, shorten your loan term to save on total interest, or use home equity to make improvements that add value, refinancing makes sense. You should think about a few things before refinancing: finding your breakeven point, where your monthly savings are greater than your refinancing costs; comparing offers from different lenders on the same day to get an accurate picture of rates; and making sure your credit score and debt levels haven't gone down since you first got your mortgage. Most refinances take one day of ownership for rate-and-term options or six months for cash-out options. The process takes 30 to 45 days and lets you lock in rates and get rid of PMI once you reach 20% equity.

Key Takeaways

• Refinancing makes sense when lower rates mean you save more than you spend on interest or monthly payments, especially early in your loan term or when rates drop by 0.5% or more below current rates.
• Shorter terms, like 15 years, lower the total interest a lot, even though the monthly payments are higher. Rate-and-term refinancing lets you change the term without taking out equity.
• Cash-out refinancing turns equity into money for school, home improvements, or paying off debt at lower interest rates than credit cards or personal loans.
• If you switch from an ARM to a fixed-rate mortgage, you won't have to worry about rates going up in the future. If you move within 3 to 7 years, though, ARMs have lower initial rates.
• Before refinancing, figure out your breakeven points by dividing the closing costs by the monthly savings. This will tell you how long you need to stay in the home to make money from the refinance.

Maybe. There are compelling reasons to refinance, especially with rising home values and low interest rates. Whether it's right for you depends on your financial situation. Let's explore the benefits and factors to consider before making this significant financial decision.

Reasons homeowners refinance and what to consider:

Saving money: With today's hot real estate market and low interest rates, refinancing can lower your monthly payment or total interest paid over the loan term, especially in the early years or with a substantial rate reduction. Use a Mortgage Refinance Calculator to assess potential savings.

Shorter loan term: Refinancing to a shorter term like 15 years can reduce overall interest costs, even with higher monthly payments. A rate-and-term refinance allows for a new term without additional funds.

Access to home equity: A cash-out refinance lets you tap into home equity for expenses like education or home improvements, potentially increasing your property's value. Use a cash-out calculator to estimate accessible equity.

Avoiding future rate hikes: Switching from an adjustable-rate mortgage (ARM) to a fixed-rate loan protects against rising interest rates. Conversely, an ARM may offer lower initial rates, beneficial if planning to relocate soon.

Eliminating PMI: Refinancing can remove Private Mortgage Insurance (PMI) once you reach 20% equity, saving on monthly payments. FHA loans require refinancing to remove PMI, while conventional loans allow cancellation at 20% equity. Check out this article for more information on private mortgage insurance.

Other factors before refinancing: Consider personal financial goals and tenure in your home. Compare rates from multiple lenders for the best deal, ensuring accurate comparisons by reviewing fees and terms on the same day. Calculate breakeven costs to assess refinancing benefits against expenses. Evaluate credit score changes and recent debts impacting eligibility and rates. Learn more about finding a lender for a refinance here.

Timing and process: Requirements vary by mortgage type, generally requiring ownership for one day for rate-and-term or six months for cash-out refinancing. The process typically takes 30-45 days, with options for faster online applications and rate locks. AmeriSave offers efficient processing, underwriting, and funding in-house, ensuring competitive rates and minimal delays.

Refinancing is a significant decision with potential financial benefits. Choose a lender like AmeriSave offering savings and meeting your specific needs. check out ways you can compare offers from multiple lenders.