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When is the Right Time to Refinance My Mortgage?

When you first signed your mortgage, it’s pretty likely you thought to yourself: 30 years is a very long time. Am I ready to make that sort of a commitment?


Well, we can’t tell you whether you were actually ready or not, but what we can tell you is that refinancing is always an option. This means that if you don’t like the terms or structure of your mortgage, there is a real possibility you can change them.


There are a lot of different reasons why you might consider refinancing your mortgage, even if you consider the status quo to be totally acceptable. In this brief guide, we will explain what it means to refinance your mortgage, along with a few of the many situations that might inspire you to decide to refinance.

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What Does it Mean to “Refinance” a Mortgage?

The term “refinancing” can be used to describe quite a few different situations, but generally means trading out your old mortgage in exchange for a new mortgage. When this happens, your new lender will pay off your existing mortgage and replace it with a new one, often with different terms or some sort of different structure.


In order to refinance your mortgage, you will need to once again apply for a new one—just because you have an existing mortgage doesn’t necessarily mean you will be approved (or secure the terms you want), but if your mortgage is in good standing and you have been making all your payments on time, then approval will be likely.


There are also some costs that come with refinancing your mortgage, meaning you will want to consider both the benefits and drawbacks before making a final decision. In the United States, the average cost of refinancing a mortgage will be about $4,000, though this figure can vary quite a bit depending on who you are refinancing through and the type of refinancing you hope to accomplish. However, there are quite a few situations in which the benefits of refinancing will significantly offset the costs, so you will want to keep your options open.


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Situations Where You’d Want to

Refinance Your Mortgage

The most obvious reason to refinance your mortgage is that you want to secure a lower interest rate. Depending on the size of your mortgage, lowering your interest rate by a single percentage can help you save thousands of dollars per year (which will easily offset your initial costs). While it is true that interest rates are higher now than they were at the beginning of the year, they are still lower in many cases than they used to be (especially if your mortgage originated before the recession). Be sure to ask your mortgage lender what interest rate you could potentially qualify for.


Another common reason for refinancing a mortgage is to access the equity in your home. If you’ve lived in your home for a few years, you’ve likely generated a significant amount of equity in two different ways: paying down the principal (which increases the portion of your home you actually own) and having your home increase in value. However, until you act, this equity remains illiquid. Refinancing can help you turn some of this equity into cash, which can be used to make it easier to stay current with mortgage payments, invest in home improvements, consolidate your debt, or various other purposes.


Additionally, refinancing can be used to convert the structure of your mortgage. For example, if you currently have an adjustable-rate mortgage (ARM), you might want to convert it to a fixed-rate mortgage that has predictable, steady payments. This concephas proven to be especially desirable in 2022, when mortgage rates have been on the rise and many people want to lock in a lower monthly payment before they increase further. Beyond converting an ARM, refinancing will also give borrowers the option to convert a 30-year mortgage to a 15-year mortgage (or vice versa), which might help them save money or gain additional financial flexibility.

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Should I Consider Refinancing My Mortgage?

Refinancing is something you should also consider as an option, even if you don’t end up following through with it. As you begin deciding whether refinancing will make sense for your particular financial situation, ask yourself the following questions:


• How much will it cost for me to refinance?

• Has my financial situation improved since I got my first mortgage (better credit score, debt-to-income ratio, etc.)?

• Could I qualify for a better interest rate right now?

• What is my primary objective of refinancing? Am I looking to save some money, access equity, or achieve another financial objective?

Whether refinancing makes sense for a given person will naturally depend on several different factors. However, it is clear that interest rates are on the rise and have the potential to rise even further. This means that, at least for many people, refinancing might need to be made a financial priority.

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