5 key factors to consider before refinancing your mortgage
Refinancing your mortgage can save you money, but only if you get the timing and terms right. In this post, we’ll walk through the five most important factors you should evaluate before you submit an application.
1. Current interest rate vs. new rate
The primary goal of refinancing is usually to secure a lower interest rate. Compare your existing rate to today’s market rate – and don’t forget to factor in any points you’ll pay upfront.
2. Closing costs and fees
Refinances come with closing costs that typically run 2–5% of your loan amount. Calculate your break-even point by dividing total costs by your monthly savings to see how long it will take before you’re actually better off.
3. Loan term adjustments
Shortening your term (e.g., from 30 years to 15) can save interest over the long run, but will raise your monthly payment. Conversely, extending the term lowers payments but increases total interest paid.
4. Your credit profile
Lenders want to see a solid credit score and stable income. If your score or debt-to-income ratio has improved since you first took out the loan, you’ll qualify for better rates and programs.
5. Your long-term plans
If you plan to move or sell within a few years, a refinance may not make sense – even with a lower rate – because you might not reach the break-even point before you sell.
Next steps:
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Check today’s refinance rates with at least three lenders.
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Run an online refinance calculator (like ours) to estimate your costs and savings.
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If the numbers look good, gather your income documentation and apply.
— MortgageRefinancingBlog.com team