Is Now the Right Time to Refinance Your Mortgage? Here’s How to Know

Introduction

One thing for sure is that mortgage rates change constantly, and with the market fluctuating, you might be wondering: Is now the right time to refinance? Refinancing can help you save money, reduce your monthly payment, or tap into your home’s equity—but it’s not always the best move for everyone.

 

As a seasoned mortgage loan officer, I’ll walk you through the key factors to consider so you can make an intelligent, informed decision about refinancing your mortgage.

 

What Is a Mortgage Refinance?

Refinancing replaces your existing mortgage with a new loan, typically with better terms. The most common reasons to refinance include lowering your interest rate, shortening the loan term, switching loan types, or accessing the equity in your home through cash-out refinancing.

 

When Might Be a Good Time to Refinance

• Interest Rates Have Dropped: A good rule of thumb is to refinance if you can lower your rate by at least 0.5% to 1%.
• Improved Credit Score: If your credit score has increased since you took out your original mortgage, you might qualify for a better rate.
• You Want a Different Loan Term: Refinancing from a 30-year to a 15-year loan can save you thousands of dollars in interest.
• You Need Cash: A cash-out refinance lets you tap into your home equity for major expenses like home improvements or debt consolidation.

Costs to Consider Before Refinancing

Whether paid upfront or rolled into the loan amount, refinancing isn’t free. In a “no closing cost refinance”, instead of paying upfront the costs or either rolled into the loan amount or expressed in a higher interest rate. In any case, expect to pay 2% to 5% of your loan amount in closing costs. Here are some common fees:

• Application fees
• Appraisal fees
• Title search and insurance
• Origination fees

How to Calculate Your Break-Even Point

Your break-even point is when your savings from refinancing cover the cost of the refinance. Divide your closing costs by your monthly savings to determine how many months it will take to recoup the expense.

 

Example: If refinancing costs $4,000 and you’re saving $200 per month, your break-even point is 20 months.

 

When Refinancing Might Not Be Worth It

• If you plan to move soon and won’t hit the break-even point.
• If refinancing fees outweigh potential savings.
• If you’ve already locked in a competitive interest rate.

How to Start the Refinancing Process

1. Check Your Credit Score: Higher scores lead to better rates.
2. Shop Around for Lenders: Compare offers from multiple lenders.
3. Get Pre-Approved: This helps you understand your refinancing options and estimated costs.
4. Submit Your Application: Provide documentation such as income verification, tax returns, and a current mortgage statement.
5. Close on Your New Loan: Review and sign the necessary documents to finalize your refinance.

Is Now the Right Time for You?

Refinancing can be a smart financial move—but it’s not one-size-fits-all. If you’re unsure whether refinancing makes sense for you, I’m here to help and as a broker have a number of financing options available. Let’s discuss your unique financial goals and mortgage options.  Contact Bryan Scott today for answers to your questions and expert guidance.  For a free, no obligation 30-minute consultation you can schedule it HERE.  Otherwise, Bryan can be reached by phone at (512) 864-4866 or by email bscott@gfmortgages.com.