Should I refinance my mortgage?
Refinancing makes sense when what you save with the new loan will outweigh what it costs to get it, before you sell the home or pay the loan off. To decide, compare the closing costs with how much you would save each month, and be honest about how long you expect to keep the loan.
How to decide
- Find your break-even point. Divide the total cost of refinancing by how much you would save each month. The result is roughly how many months it takes to earn those costs back. If you expect to keep the new loan well beyond that, refinancing is more likely to pay off.
- Compare total cost, not just the monthly payment. Starting a new long-term loan can lower your payment while raising the total interest you pay, because the clock on your payoff starts over. Ask each lender for the total cost over the time you expect to keep the loan.
- Check whether you will qualify. Lenders look at your credit, your income and your home’s value again. If any of these has weakened since you got your current loan, the new rate may be higher than you expect, or you may not qualify.
- Count every cost. Closing costs usually include lender fees, an appraisal, title charges and government recording fees. Some loans also charge a fee for paying them off early, so check your current loan’s terms.
- Be clear about your goal. People refinance to get a lower rate, to pay the loan off sooner, to take cash out of their equity, or to switch from an adjustable rate to a fixed one. Each goal changes which offer is right.
When refinancing may not be worth it
- You expect to sell or move before you reach the break-even point.
- The closing costs are large compared with the monthly savings.
- Your credit, income or home value has changed, so the rate you would get is not meaningfully lower.
- You would extend the loan so far that you pay more interest overall, and a lower payment is not what you need.
How to shop for a refinance
- Get several quotes on the same day. Rates change daily, so quotes from different days are hard to compare.
- Compare Loan Estimates. Lenders must give you a standard Loan Estimate form within three business days of an application, which makes offers easier to compare line by line.
- Ask about the rate lock. Find out how long the quoted rate is guaranteed and what happens if closing is delayed.
- Watch for costs rolled into the loan. A “no-closing-cost” refinance usually builds those costs into a higher rate or a larger balance.
Common questions
How do I know if rates have fallen enough to refinance?
There is no single rule. Work out your break-even point from your actual closing costs and monthly savings, then compare it with how long you expect to keep the loan. The larger your balance and the longer you will stay, the smaller the rate drop that can justify the costs.
Will refinancing hurt my credit?
Applying causes a hard credit inquiry, which usually lowers a credit score slightly and briefly. Credit scoring models typically treat several mortgage inquiries made within a short shopping period as a single inquiry, so comparing lenders over a few weeks has little extra effect.
Can I refinance if my home’s value has fallen?
It can be harder. Lenders compare your loan balance with your home’s current value, and less equity can mean a higher rate, a requirement for mortgage insurance, or not qualifying. Some government-backed loan programs have streamlined refinance options with lighter requirements; ask your servicer what applies to your loan.
What is a no-closing-cost refinance?
It is a refinance where you pay no closing costs upfront. The lender either charges a higher interest rate or adds the costs to your loan balance, so you still pay for them over time.
Another option
Refinancing is how most borrowers get a lower rate after market rates fall. A different approach is a mortgage whose rate lowers automatically, with no new application. Marian is building one: its rate resets lower when market rates fall by a defined amount, down to a floor, and never goes up. Marian is pre-launch and is not lending in any state yet. You can read how the rate works or join the waitlist.