Should I Refinance?

Homeowners refinance for many different reasons: to lock in a more favorable interest rate, to withdraw equity they've built up in their home, or to pay off their mortgage more quickly. If you're thinking about refinancing, here are some things you'll need to consider:

  • The interest rate of your current mortgage versus the current rate. If rates have dropped since you first financed your home, refinancing may be worth your while.
  • The type of loan you have. If you have an adjustable rate loan, you may want to refinance to switch to a fixed-interest loan.
  • How long you plan to stay in your house. If you’re thinking of selling in the next three to five years, the amount you save on refinancing may not cover the costs associated with closing.

While refinancing will include closing fees, the goal is saving money over the long term. Closing fees are always part of the equation. Even mortgages that are advertised as having no-cost or low-cost closings have closing fees — they're just not called closing fees.

Fees and paperwork aren't the only drawbacks to refinancing, though. If your current mortgage agreement includes a prepayment penalty, you may lose money by refinancing unless you can negotiate with your lender to waive the prepayment clause.

Refinancing can be time-consuming and expensive. But once you run the numbers, you may find that the long-term savings will offset the costs related to refinancing, making it worth your while. Then you can take the money you save each month from your reduced payments and put it to better use.