Refinancing your home loan can lower your lifetime interest costs and reduce your monthly payment, among many other benefits.<\/p>\n
However, you\u2019ll want to evaluate the pros and cons of a mortgage refinance before you apply. This will help you determine if refinancing is the right move for you.<\/p>\n
Here\u2019s a closer look at the advantages and disadvantages of mortgage refinancing:<\/b><\/p>\n <\/a><\/p>\n There are several advantages to refinancing a mortgage, including a potentially lower interest rate. Credible also has a refinance calculator<\/a> you can use to help you decide whether or not you should refinance.<\/p>\n A lower rate can reduce your lifetime interest costs by thousands of dollars. Consider refinancing when mortgage rates begin to dip. Most experts agree that you should consider refinancing if you can lock in a rate that\u2019s 0.75 percentage points lower than your current rate.<\/p>\n You may also be able to lock in a better rate if your credit score is higher than when you took out your original mortgage.<\/p>\n Learn More: <\/i><\/b>When to Refinance a Mortgage: Is Now a Good Time?<\/i><\/b><\/a><\/p>\n It\u2019s possible to reduce your monthly payment through a mortgage refinance<\/a>. You can potentially get a lower interest rate or extend your repayment term \u2014 or do both. If you\u2019re currently struggling to pay the bills and want to keep your home loan in good standing, refinancing might be a necessary option.<\/p>\n If you think refinancing is the right move, Credible makes it easy. You can compare multiple lenders and see prequalified rates in as little as three minutes without leaving our platform.<\/p>\n Find My Refi Rate<\/a> <\/p>\n <\/p>\n<\/div><\/div>\n A cash-out refinance<\/a> can help you tap into your home equity. You\u2019ll pay off your original mortgage with a newer, larger loan and receive the difference in cash.<\/p>\n You can then use the distribution to fund home improvement projects or other expenses, like credit card debt or a down payment on an investment property.<\/p>\n If you currently have an adjustable-rate mortgage (ARM)<\/a>, refinancing to a fixed interest rate will provide more stability in your monthly principal and interest payments. With a fixed-rate loan, you\u2019ll pay the same amount every month for the entire loan term. This makes your mortgage payment easier to budget for and provides you with some peace of mind.<\/p>\n Refinancing into a conventional mortgage with at least 20% interest waives private mortgage insurance (PMI) charges. This is also a way to get out of paying mortgage insurance premiums on an FHA loan.<\/p>\n Read: <\/i><\/b>Here\u2019s What You Need to Know About Refinancing an FHA Loan<\/i><\/b><\/a><\/p>\n <\/a><\/p>\n Here are some of the drawbacks that accompany mortgage refinancing.<\/p>\n Just like a new home loan, you must pay closing costs with any mortgage refinance loan. These fees are approximately 2% to 5% of your loan amount.<\/p>\n Some of the fees you can expect to pay include:<\/p>\n You may be able to roll some of the fees into your new mortgage, but this may increase your loan APR and lifetime interest costs. A mortgage payment calculator<\/a> can help compare your upfront costs and potential lifetime interest costs.<\/p>\n If you\u2019re planning on selling your home in the next few years, you\u2019ll want to find your breakeven point \u2014 the point at which you\u2019ll recoup your closing costs \u2014 to determine if refinancing is worth it.<\/p>\n Switching to a shorter repayment period, such as 15 years instead of 30 years, will most likely increase your monthly payment as you have fewer years to pay off the loan principal. Deferring your closing costs can also increase your payment.<\/p>\n On a positive note, you\u2019ll be out of debt faster and pay less interest by opting for a shorter repayment period. If you can afford the higher monthly payments, it\u2019s a good option to consider.<\/p>\n Extending your repayment term can increase your total interest costs even if you get a lower interest rate or smaller monthly payment.<\/p>\n Here\u2019s an example of how much more your total interest costs can be when refinancing to a 30-year term. This example assumes a current mortgage balance of $226,445 with 25 years remaining on an original 30-year term.<\/p>\n\n\n
Pros of refinancing your mortgage<\/h2>\n
Lock in a better interest rate<\/h3>\n
Lower your monthly payment<\/h3>\n
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\nChecking rates will not affect your credit<\/small><\/p>\nTap into your home equity<\/h3>\n
Enjoy more predictable payments<\/h3>\n
Avoid mortgage insurance<\/h3>\n
Cons of refinancing your mortgage<\/h2>\n
Need to pay closing costs<\/h3>\n
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Monthly payments could be higher<\/h3>\n
Might increase the overall cost of your loan<\/h3>\n