Homeowners refinance to get a better rate, remove mortgage insurance, shorten their loan, or lower their payment. It can also be a way to tap home equity. It's a decision worth weighing carefully before you commit.

What does it mean to refinance?

Refinancing replaces your original mortgage with a new one. The goal is usually a lower interest rate, a shorter loan term, or both. Better terms can mean a lower monthly bill, and a shorter term pays off your loan faster. You'll still pay closing costs to complete the process.

Common reasons to refinance

• Secure a rate lower than your current one
• Reduce your monthly payment
• Switch from an adjustable-rate to a fixed-rate mortgage
• Shorten your loan term
• Consolidate debt or pay for large expenses such as renovations or tuition
• Remove private mortgage insurance (PMI) on a conventional loan

The pros of refinancing

• Lower rate and payment. A lower rate can save thousands over the life of the loan. If your credit score has improved since your original application, you may qualify for better rates.
• Shorter loan term. Moving from a 30-year to a 15-year loan can cut your total interest. A loan with no prepayment penalty also lets you pay extra when you can. Paying off your loan sooner can lower your debt-to-income ratio for future financing.
• Dropping PMI. If you started with less than 20% down on a conventional loan, you likely pay PMI, which typically costs 0.5% to 2% of the original loan amount each year. A refinance looks at your equity based on current home value, so reaching about 20% equity can let you drop it.
• Cash-out refinance. You borrow more than you owe and receive the difference in cash to consolidate debt, pay for education, or fund home improvements. Most lenders want you to keep at least 20% equity, and the new rate should still make sense, or interest costs could erase the benefit.
• Switching from an ARM to a fixed rate. An adjustable-rate payment moves with the market. A fixed rate gives you consistent payments and protection from future increases.

The cons of refinancing

• Closing costs. You'll pay costs such as appraisal, attorney, and filing fees again. Compare your savings to those costs, because a small savings may not justify the expense.
• A higher payment with a shorter term. Shorter terms mean larger monthly payments. Make sure your budget can handle it and still leave room for emergencies.
• A temporary credit dip. Lenders run a hard credit inquiry, which can lower your score slightly in the short term. It usually recovers with on-time payments, but it could affect other financing you're applying for at the same time.

Common questions

Can I refinance soon after my original loan? Often yes. Some loans allow it as soon as six months after closing, though timing depends on your loan type, your lender, and the kind of refinance.

When is the best time to refinance? It's worth a look if you can lower your rate by about 0.5%. It tends to make the most sense if you plan to stay in the home for a while, your credit has improved, or you have 20% or more equity.

Bottom line

Refinancing works best when the long-term savings clearly outweigh the costs. Learn more about your refinancing options here, or reach out and our team will run the numbers with you.

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Examples shown are general and vary by lender, loan type, and borrower. This is general information, not a loan commitment.