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Considering Refinancing Your Home: When It Makes Sense and Potential Savings

Why Refinance Your Home?

Refinancing your mortgage can offer several financial benefits, depending on your current circumstances and goals:

  • Lower Monthly Payments: Refinancing can reduce your monthly mortgage payments, freeing up cash for other financial priorities.

  • Reduce Total Interest: If current interest rates are lower than when you secured your original mortgage, refinancing could save you a significant amount in interest over the life of the loan.

  • Switch Rate Types: Converting from an adjustable-rate mortgage (ARM) to a fixed-rate can offer stability and potential savings if your ARM rate has increased.

  • Shorten Loan Term: If your financial situation has improved, you might opt to shorten your loan term, which can save on interest and accelerate your mortgage payoff.

  • Cash Out Equity: You may choose to tap into the equity of your home for large expenses such as home renovations, although this increases your loan amount.

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Considerations Before Refinancing

  • Duration in Home: If you have been paying your current mortgage for a long time, refinancing might extend the term and increase the total interest paid over the life of the loan, despite a lower monthly payment.

  • Costs of Refinancing: Upfront costs associated with refinancing can be significant. Assess whether these are outweighed by the potential savings.

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How Much Could You Save?

The amount you can save by refinancing depends on various factors:

  • Interest Rate Difference: A lower rate can substantially reduce both your monthly payment and total interest paid.

  • New Loan Term: A shorter term increases monthly payments but decreases total interest.

  • Current Loan Balance: The amount you still owe on your current mortgage influences potential savings.

 

Using a Refinancing Calculator

To accurately evaluate whether refinancing is financially beneficial:

  • Input Current Loan Details: Include your current loan balance, interest rate, and remaining term.

  • Compare New Loan Offers: Look at the new potential interest rates, terms, and associated refinancing costs.

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Refinancing a home can be a strategic financial move, but it's crucial to consider all factors, including long-term cost implications and personal financial stability, before making a decision.

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