When Should You Refinance Your Mortgage?

Here’s a handy guide to help you understand when to refinance your mortgage and if it’s the right move for you!

How Refinancing Your Mortgage Works

When you first purchased your home, you borrowed money from a lender to pay the home seller. Now you’re making monthly loan payments to that lender to pay back the money that you borrowed.
When you refinance your mortgage, you take out a new loan with a new rate and terms. This new loan pays off your original loan and you begin making payments on the new loan.

Refinancing your mortgage can be a great way to save money and get loan terms that beat what you currently have. However, refinancing costs money in the short term. That’s why it’s important to make sure that you are going to recoup those costs, plus experience the ongoing benefits and potential savings of your refinanced mortgage.

When Should You Refinance Your Mortgage Loan?

We’ve covered the basics of what a refinance is and how it works, but you’re likely wondering when should you refinance your mortgage? A mortgage refinance makes the most sense if you want to achieve any of the following:

Reduce Your Interest Rate & Monthly Payment

Refinancing your loan to a lower interest rate reduces your monthly payment. With a refinance, you can lower your current interest rate on the amount of money you owe. This means paying the bank less while more of your money goes toward paying off your principal balance.

Modify Loan Terms

If your concern is the length of time remaining on your current mortgage, refinancing to a shorter term might be the solution. Monthly payments with a shortened term may carry a slightly higher rate, but the years you have to make payments are fewer. While you may not see a payment reduction every month, your interest rate has been reduced which ends up saving you money over time.

Bookmark our mortgage payment calculator as a helpful tool when comparing how your expected monthly payment can be affected by your loan term.

Improved Credit Score

Your credit history plays a significant role in determining your credit score. If your credit score has seen an improvement since you took out your mortgage, you could qualify for a better rate. When you refinance, the big factors your lender considers are your credit score and history. If you are paying bills on time and in full, your credit score has likely increased. Keep a close eye on your credit history and take advantage of getting a free credit report before starting the refinance process.

Mortgage Refinancing Considerations

Before you refinance your mortgage, ensure that it makes sense for you at this time. It might be the case that you can get a new low rate and save hundreds on your monthly payment. However, there are situations where the cost to refinance outweighs the potential savings.

When you took out your original mortgage, you paid fees to go through the process. There are similar fees associated with refinancing. These include loan origination fees, appraisal fees, application fees, among others.

Another factor is the refinance process. There are many moving parts when you refinance, just like when you applied for your existing mortgage loan. From start to finish, the process typically takes between 30-60 days.

When you refinance, your new loan is partially used to pay off your old loan. If mortgage rates increase, it may be more beneficial to use another funding source and keep your existing lower rate for the loan. Only refinance if you know you’ll be in the house long enough to break even and save money. Otherwise, it may be more advantageous to consider the process at a later time.

Refinance Your Mortgage With Call Federal Credit Union

Understanding when you should refinance your mortgage is important. Now that you’ve learned the basics, the next step is to browse current rates and calculate your potential savings.

Check out our current loan rates and see how you can save today!