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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.

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.

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.

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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