When To Refinance Mortgage: 6 Key Signs It’s Time To Make A Move

Refinancing your mortgage can feel like a big decision, but sometimes it’s the smartest financial move you can make. If you’ve been eyeing those interest rates, thinking about tapping into your home’s equity, or just wondering if you can lower your monthly payments, you’re in the right place. Knowing when to pull the trigger on a refinance could save you thousands of dollars and potentially years off your loan. Ready to find out if now’s the time for you to make a move? Keep reading to see how you can get personalized offers from our trusted partners through MoneyLion!

What to consider before refinancing a mortgage

Before you jump into refinancing, consider these factors to help determine if it’s the right time for you.

• Interest rates have dropped: If current interest rates are significantly lower than when you originally took out your mortgage, refinancing could save you money. A drop of even 1% could lower your monthly payment and reduce the total interest you pay over the life of the loan.
• Value of your home has increased: When your home’s value goes up, it might be the perfect time to refinance. If your home equity has grown, you can get better loan terms or even consider a cash-out refinance, where you borrow against that increased equity for a big expense, like home improvements.
• Your credit score has improved: An improved credit score can unlock better refinancing rates. Lenders offer lower interest rates to borrowers with higher scores, so if you’ve been diligently working on building your credit, you could be eligible for a lower-rate loan.

When should you refinance a mortgage?

Here are some common reasons to consider refinancing your mortgage.

Switch from an adjustable rate to a fixed-rate mortgage

If you’ve been riding the wave of an adjustable-rate mortgage (ARM) but are worried about future rate hikes, refinancing to a fixed-rate mortgage can provide stability. For example, if your ARM has a low initial rate that’s set to increase soon, refinancing now locks in today’s rates and protects you from future increases.

Lower your monthly payments 

Refinancing to a lower interest rate or extending your loan term can reduce your monthly payments. Let’s say your current mortgage payment is $1,500. By refinancing to a lower rate, you could see that payment drop to $1,200, freeing up extra cash each month.

Shorten your loan term

If you want to pay off your mortgage sooner, refinancing from a 30-year to a 15-year loan can help you do that — and save on interest in the process. While your monthly payments might go up, the long-term savings can be substantial because you’re reducing the number of years you have to make mortgage payments.

Tap into your home equity with a cash-out refinance

Need cash for home improvements, debt consolidation, or a big purchase? A cash-out refinance allows you to borrow against your home’s equity. For instance, if you’ve built up $100,000 in equity, you might be able to refinance your mortgage and take out $30,000 in cash.

Remove private mortgage insurance (PMI)

If you’ve built up 20% or more in home equity, refinancing could allow you to ditch PMI. This move can save you anywhere from $100 to $300 a month. If you bought your home with less than 20% down and have hit that equity mark, it’s worth considering.

Remove a co-borrower from the mortgage

Life changes, and so do mortgages. If you’ve gone through a divorce or want to remove a co-borrower for another reason, refinancing is the easiest way to do this. By taking out a new loan in just your name, you can free up the other party from financial responsibility.

---

You may be seeing improved rates for personal loans as well. MoneyLion offers a service to help you find personal loan offers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

---

When should you not refinance?

While refinancing has its perks, it’s not always the best move. Here are some signs it might not be right for you.

You cannot cover the closing costs

Refinancing comes with closing costs that typically range from 2% to 5% of the loan amount. If you can’t afford to cover these costs upfront or roll them into the loan, it might not be worth it. For example, if refinancing a $200,000 mortgage comes with $6,000 in closing fees, it could take years before you break even with the savings.

You are close to paying off your existing mortgage

If you’re just a few years away from paying off your mortgage, refinancing might not make sense. The costs of refinancing could outweigh the benefits, and extending your loan could end up costing you more in the long run.

You plan to move within the next few years

If you’re planning to move soon, refinancing is usually not worth the hassle and expense. Since it takes time to break even on the costs, it’s smarter to keep your existing loan until you sell your home.

You have a significant prepayment penalty

Some mortgages come with a prepayment penalty if you pay off the loan early. If your current mortgage has such a clause, refinancing could trigger this penalty, negating your potential savings. Check your loan terms before starting the refinancing process.

Is it time to refinance?

Refinancing your mortgage can save you thousands over the life of your loan — but only if you do it for the right reasons. Whether you’re looking to lower your monthly payments, lock in a better rate, or tap into your home’s equity, timing is everything. On the flip side, if you’re close to paying off your loan or facing hefty prepayment fees, refinancing might not be the best option. Evaluate your long-term financial goals before making the move.

FAQ