Refinancing replaces your current mortgage with a new one, ideally on better terms. It can be a smart move, but only when the savings outweigh the costs. These six questions can help you decide.
1. What Is My Goal?
People refinance for different reasons:
- Lower the monthly payment by securing a better rate or extending the term
- Shorten the loan (for example, 30 years to 15) to pay less interest overall
- Switch loan types, such as moving from an adjustable rate to a fixed rate
- Access equity through a cash-out refinance for renovations, debt consolidation, or other goals
Your goal shapes which refinance makes sense.
2. Is My Rate Meaningfully Higher Than Today’s Rates?
Compare your current rate to what is available now. Rates change often, so check current numbers before you decide, and look at the actual payment difference rather than headlines.
3. What Are the Closing Costs?
Refinancing has costs, such as lender fees, appraisal, and title charges. Some borrowers choose a lower-cost or no-closing-cost structure, which may mean a slightly different rate. Ask for a clear estimate so you can compare.
4. What Is My Break-Even Point?
Divide your total closing costs by your monthly savings. The result is roughly how many months it takes to recoup your costs. If you plan to stay in the home well beyond that point, refinancing may make sense.
5. How Long Will I Stay in the Home?
If you expect to sell soon, you may not reach break-even. If this is your long-term home, the savings have more time to build.
6. How Is My Credit and Home Equity?
Better credit and more equity generally mean better terms. If your credit has improved or your home value has risen since you bought, you may qualify for a better deal than you expect.
Refinance With Confidence
A good loan officer will run the numbers and tell you honestly if refinancing is not worth it. Chad Bahnsen at Chad the Mortgage Man offers no-obligation consultations to help you compare scenarios. Call +1 610-457-7262 or email [email protected].
About the author: Chad Bahnsen is a Philadelphia-area mortgage professional with 25 years of experience in purchase and refinance lending. Learn more at https://www.chadthemortgageman.com/. NMLS# 1794507. Rates, terms, and eligibility are subject to change and credit approval.
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