Please ensure Javascript is enabled for purposes of website accessibility

8 Scenarios Where Mortgage Refinancing Makes Sense

Author: Maurie Backman | March 03, 2021

A mortgage application stamped with red Approved stamp

Source: Getty Images

1 of 10

Should you refinance?

When you refinance your mortgage, you swap your existing home loan for a new one -- a loan with terms that work better for you. Refinancing has its benefits, but it's not right for everyone. In these scenarios, however, it generally makes sense.

Our credit card expert uses this card, and it could earn you $1,148 (seriously)
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

Previous

Next

Large red arrows pointing downward and cracking white gray surface

Source: Getty Images

2 of 10

1. Rates are down

The lower the interest rate on your mortgage, the less that loan costs you each month. As such, when rates drop substantially across the board, it could pay to refinance. Generally, your goal should be to drop your interest rate by about 1%, or somewhere close.

Previous

Next

Credit score options, excellent, good, and fair

Source: Getty Images

3 of 10

2. Your credit score has improved since you signed your original loan

The interest rate you're given on your mortgage will hinge on a number of factors, and your credit score is one of them. If that number has improved significantly since you signed your home loan, then it could pay to refinance, because chances are, you'll be eligible for a much more favorable rate.

Previous

Next

Piece of paper on clipboard that says Adjustable Rate Mortgage

Source: Getty Images

4 of 10

3. You have an adjustable rate mortgage

With an adjustable rate mortgage, you're guaranteed to pay the same interest rate for a preset period of time, after which your rate has the potential to adjust upward. Refinancing to a fixed-rate loan before your adjustable rate mortgage climbs could therefore spare you from having a higher monthly payment on your hands.

Previous

Next

Smiling woman with both hands full of cash

Source: Getty Images

5 of 10

4. You want to take cash out of your home

With a traditional refinance, you exchange your existing mortgage for a new one with the same balance. With a cash-out refinance, you borrow more than your existing loan balance and get the remainder in check form. You can then use that money as you see fit. A cash-out refinance can be a fairly cheap way to borrow, because rather than pay a higher interest rate on a credit card or personal loan, you can instead take cash out of your mortgage and pay it back at a relatively low rate.

Our credit card expert uses this card, and it could earn you $1,148 (seriously)
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

Previous

Next

Woman writing in notebook in sunny living room

Source: Getty Images

6 of 10

5. You want to lower your monthly payments by extending your loan

The benefit of signing a 15-year mortgage is locking in a lower interest rate than what you'll get with a longer loan term, and also, saving money on interest throughout your repayment period. But if you're having trouble keeping up with your 15-year loan, refinancing to a 30-year loan could make your payments far more affordable. Though you may see your interest rate climb, you'll stretch out your repayment period so you're paying your lender less each month.

Previous

Next

Woman in glasses doing calculations in a notebook

Source: Getty Images

7 of 10

6. You want to shorten your loan term

You may want your home paid off in time to meet a certain milestone, like retirement. Refinancing from a longer loan term to a shorter one -- say, going from a 30-year mortgage to a 15-year loan -- could help you achieve that goal.

Previous

Next

Couple smiling while moving sofa in living room

Source: Getty Images

8 of 10

7. You're not planning to move anytime soon

When you refinance a mortgage, you pay closing costs that eat into your savings. But if you'll be in your home long enough to make up for them, then refinancing could easily pay off. For example, you might get charged $4,000 in closing costs to refinance, which then lowers your monthly payments by $200 apiece. But all it takes in this scenario is for you to stay in your home for 20 months to break even, so if you intend to remain where you are for a while, refinancing is a move worth making.

Previous

Next

Man in business suit writing on checklist with pen

Source: Getty Images

9 of 10

8. You’re offered really low closing costs

Some lenders are able to keep their closing costs to a minimum. If you get such an offer, it could pay to refinance even if the interest rate on your loan doesn't drop by about 1%. For example, if you're charged $2,000 in closing costs and that saves you $50 a month, you'll break even in 40 months, so if you plan to be in your home beyond that point, you'll come out ahead financially. And while $50 may not seem like a huge amount of monthly savings, it's better than nothing.

Our credit card expert uses this card, and it could earn you $1,148 (seriously)
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

Previous

Next

Happy mature man typing on laptop

Source: Getty Images

10 of 10

Make the right call

A lot of borrowers are refinancing these days as interest rates remain competitive. If any of these scenarios apply to you, you might really benefit from following in their footsteps.

Previous

Next