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Refinance My Home

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HIGHLIGHTS
  • Determine whether the lifetime cost of your new mortgage is lower before considering to refinance a home.
  • There are many considerations in a refinance, including rate, monthly payments, APR, and lender fees.
  • Research rates and compare banks and lenders if you want to get a refinance mortgage loan.

Top Answers to the Question: Should I Refinance My Home and Mortgage Loan?

There will come a time in your life when it is a good idea to refinance your home. However, before you refinance, you need to determine if the market is right for refinancing, and if you are refinancing for the right reasons. It is also important to locate a lender who will work as your partner to meet all of your home refinance needs and assist you when you cry, "Help me refinance my home!"

Refinancing a home is not a decision to be taken lightly. With ARMs gone bad and a record number of foreclosures, refinancing can be a way to get some relief. However, there are many other reasons to refinance. Learn why people choose to refinance their homes, when it may not be the best decision, and whether it may be right for you.

Four Reasons to Refinance Your Home

There are many situations where refinancing a mortgage is a good decision. It can save your house, save you money, or help you with other financial needs. Read on to learn the four reasons to refinance your home.

Quick tip  Contact one of Bills.com's pre-screened refinance partners for a free, no-hassle mortgage quote.

1. Saving Money When You Refinance Your Home

Refinancing can be an effective way to save money on your monthly mortgage payment. Refinancing can save you money by lowering the interest rate, lengthening the term of the mortgage , or helping you pay off high-interest rate debt at a lower cost.

2. Changing an ARM to a Fixed Rate Mortgage

A good reason to refinance can be when you have an adjustable rate mortgage (ARM) and you refinance to lock into a fixed-rate mortgage. This will protect you from an increase in future interest rates, which could make it harder for you to afford your mortgage. Many people are taking advantage of the low rates available to refinance their ARMs into a a fixed-rate loan in order to reduce the stress and worry that comes with the uncertainty of an adjustable rate loan. Moving into a fixed rate mortgage can help you avoid financial trouble before it starts.

3. Getting Money Out of Your Home

Another reason to refinance is to get money out of your house, which is known as a cash-out refinance. This type of refi allows you to access the equity in your house to use that money for other purposes. Many people do this to pay off other high-interest debts they may have. It is also a very popular choice for finally doing those improvements around the house. Of course, any time you take equity out of your house, you want to make sure you assess any possible risk involved and confirm that you are not putting your house in jeopardy.

4. Avoid Foreclosure with a Refi

If you are on the brink of foreclosure and are desperate to save your home, refinancing may be the answer for you. Whenever you are having trouble paying your mortgage, it is always a good idea to approach your lender and discuss the issue with them. They may be open to helping you through a refi or a loan modification. This can help you lower your current interest rate, lock in a fixed rate, and/or change the length of the loan, lowering your monthly payment and making your mortgage more affordable and helping you avoid foreclosure. You can also talk with other lenders or mortgage brokers to see if they have programs available for you. The biggest obstacles are going to be whether you have enough equity in your home and if you have missed enough mortgage payments to disqualify you from the available programs. If you do not, you need to talk to your lender and review your options.

Two Reasons Not to Refinance a Home

A refinance is not an easy fix to complicated problems, nor is it an ATM for making unneeded purchases. As with anything relating to mortgages or your house, you need to be smart about a refi and know when it is not the right decision.

1. When a Refinance Does Not Save You Money

Lower rates do not necessarily mean that a refinance will save you money. You need to thoroughly assess the situation and evaluate how much you will save, if anything. It is important to remember that with any mortgage, including the one you are about to refinance, there are always fees involved, such as closing costs. These can add up to several thousand dollars, which can prevent the refinanced loan from saving you money. You also need to consider how long you plan to stay in that specific house. If you plan to move in the near term, a refi may not save you money. Talk to a mortgage professional or trusted financial planner if you are not sure where you stand.

2. Cashing Out for Frivolous Purchases

We all would love to go on a two-week Caribbean vacation or buy the luxury or sports car we have always dreamed of driving, but using a cash-out refi for such purchases is not a very smart choice. Once you get into the habit of using your mortgage as a way to pay for things you can not really afford, you run into the danger of going into debt you cannot handle or losing your home. Using equity for home improvement projects can increase the value of your house. Using equity for luxury purchases saps the value from your home.

There are four good reasons to refinance a mortgage, and there are valid reasons not refinance, too. Everyone’s situation is different, and it is important to analyze yours before making any big decisions about your home. If you use a refi wisely, you can benefit, but knowing when to say “no” can also be to your advantage.

Comments (218)


Lois F.
Glen Carbon, IL  |  May 22, 2012
Bought home in 1999.
  • Balance $63,000 w/ARM @3.25%
  • Value $125,000.
  • Credit score 810.
  • Want to refi to fixed.
  • I'm now retired

Have bank offer of 15-year @3.25% locked until 7/30/12 and closing costs of $1,600. Any additional questions I should be asking?

Bills.com
May 22, 2012
Shop around. The rate strikes me as a a quarter-point too high given your LTV and credit score. Of course, I do not know your debt-to-income ratio, so if your DTI is sky-high your rate might be reasonable.
Jo P.
Montgomery Twp, NJ  |  April 23, 2012
I just received a quote of 3.75% on a 30yr fixed or 3.375% on a 20yr fixed...mortgage at $363k...into it for about 3 years now. Closing costs are about $2700...we can roll $2400 into new mortgage. The 30yr will save us about $372/month, but tack on 3 years to the mortgage. The 20yr will add about $30-$50/per month and will knock off 7yrs from the mortgage. We have no intentions of moving until we retire (another 25 years), but who knows what life will bring in the future. Which would you recommend?
Bills.com
April 24, 2012
Both quotes look good. You don't mention your interest rate, but it appears to be around 5%, so those rates are big improvements. In addition your closing costs are quite reasonable. Either way, financially it is a good deal.

The decision you need to make is a personal one. The main factor in your decision should be your cash flow needs. Can you afford to pay the extra $50 per month or do you need the lower mortgage payment, which will put another $372 in your pocket? Do you have a rainy day fund? Are you putting away money into your retirement accounts? If your finances are in good order, then paying off the mortgage is a good long term investment. But, if you do decide to go with the lower payment and longer period, then make sure that you do not just spend the extra money, but also build your equity. If you have extra funds, you can then decide to accelerate your payments, or make a lump sump payment.
Chris J.
Copley, OH  |  March 28, 2012
We have a 5.25% rate on a 30 year loan with around $96,000 left. We also have a HELOC at 4.5% interest only with a $30,000 balance. Would you recommend combining the 2 loans at a lower fixed rate on another 30 year mortgage? We're a little over 3 years into the home but we have about a 50% LTV due to a large down payment. We'll probably be in the home for a while.
Bills.com
March 28, 2012
As the cliche goes, "The devil is in the details." What are the closing costs for the refinance? Closing costs determine the payback time on a refinance. Lower costs = faster payback. Get a quote and then calculate your time to payback and lifetime savings.
Lindsay D.
Martinsville, IN  |  March 19, 2012
We purchased our home a little over 2 years ago. We owe $115,000, we pay $707 a month before escrow and have a 5.875% interest rate. We have good credit high 700 range. We are considering refinancing down the road but my question is should we save $ every month to put towards a "down payment" when we refinance or should we just be sending in whatever we can towards to principle every month? I'm wondering if we saved long enough to have enough to put 20% so we wouldn't have to pay the private mortgage ins. (about $50 a month). It would take us around 4 years to do so. What will save us more in the long run?
Bills.com
March 19, 2012
If you can receive a return on your money at a higher rate than your mortgage interest, then it would be better to invest the fund rather than accelerate payments. In general mortgage rates are higher than money that can be save. There is no way to know what the interest rates will be in 4 years time. Another unknown is the future value of your home, which you did not mention in your question. However, if you bring the LTV down to 80%, you can request that the Mortgage Insurance company terminates your PMI. Their decision will be based on an appraisal report, or whatever method they use to determine the property value, at the time of the demand.
DEE 7.
Detroit, MI  |  February 29, 2012
Hello, I have a new mortgage about 3yrs, my lender got in touch with me offering reduced rate from 5% to 4% VA fixed 30 yrs no cost to me. would this be good opportunity or would this be worth the lost having paid mortgage for three years(current mortage-90k) This is all new to me, being a first-time buyer and all. Thanks
Bills.com
February 29, 2012
When you say "no cost to me," do you mean that the lender is not rolling any fees into the loan, increasing what you owe? If the loan balance is the same, then reducing your interest rate is a clear winner.

If fees are being added into the loan total, then you need to think about how much the fees are, how long you will stay in the home, and how long it will take you to pay off the home if you were to make the same payment you are making today.
Erica M.
Ludowici, GA  |  February 24, 2012
My husband and I are in the process of building a home, which is 90% complete. We were pre-approved for a loan of 200,000. When we spoke to our lender, they informed us we had an account in our credit that was reported to the credit beaureu for a no initial payment made. My husband and I tracked down the account and it turns out the company reported the wrong information, however will get it fixed on their end and report it as fixed in all three credit beaureu's. My husband and I also filed a dispute. Prior to this inaccurate report, Our credit report was about 730. This wrong allegation against our credit dropped our credit score by at least 100 points. Once the credit departments are notified of this wrongful allegation towards our credit from the company, how long will it take to fix and update on our credit report? I already obtained a letter from the company stating the company messed up, it was not our fault and it will be fixed at all three beareau's. I have provided this letter to our lender. Is there any way we can fix this so it wont damage our APR rate with the lender? What's the next step? The house will be finished in a week as well.
Bills.com
February 26, 2012
Speak to your lender about a rapid rescore. I think this is your best chance of getting the score updated quickly.
Scott C.
Faribault, MN  |  February 14, 2012
I'm 8 yrs into a 30yr fixed loan @5.75%. I purchased the home for 155k and still owe 137k. with today's market, i'd be lucky to sell it for more than 110k, but have been wanting to move for a couple yrs now. I've been checking into refi's, and can get a 30yr fixed @ 4.25% and save 270 dollars/mo. I can get a 5/1 ARM @ 3.25% and save 350 dollars/mo. My question is, should i refi when i intend to sell my home as soon as i can atleast break even?
Bills.com
February 15, 2012
Your breakeven point would be about 12 to 18 months, if your closing costs are about 2%.

I understand from your question that you are underwater, your loan balance is larger than the value of your home. It is impossible to tell when the market will change and you will be able to sell the house at a price that will allow you to repay the loan.

The type of loan you take will depend on both the amount of risk you like to take and the monthly payment you wish to take. If you wish to reduce the monthly payment as much as possible, then a 30 year ARM mortgage will accomplish that goal. However, if you are refinancing through the HARP program, then you will be limited in your choices, as an ARM is possible, only when your LTV is 105% or less. If your current monthly payment is manageable, then you might want to refinance into a 20 year loan, which would keep about the same payments, but pay off the loan a little quicker than your current loan.
Brittney J.
Gardena, CA  |  February 13, 2012
My husband and I purchased our first home Dec 31, 2009 with a 30yr fixed FHA loan in the amount of $260,200 @5.25%. Our current principal balance is $251,565 and We are currently looking to lower our monthly payment (now $1,985) in preparation for a baby. We plan to live at our residence for at least another 10yrs then maintain as rental/income property. Our credit is fairly good (his in high 600's and mine in low 700's), and we have a few thousand dollars saved for closing costs. With this being our first home we have very little knowledge about the housing industry, any assistance on if/when/how we should go about refinancing would be greatly appreciated.
Bills.com
February 14, 2012
I recommend that you read the Bills.com article about FHA refinancing. You can then proceed to receive a Bills.com Quick Quote.
Dev L.
February 11, 2012
Here is my situation Purchase price: 389000 Downpayment: 20000 (5%) Amount financed: 370000 First mortgage: 320000 (80% of purchase price at 5.25% - I am paying little extra towards principal so 30 year term is reduced to 17-18 years) second mortgage: 50000 (15% of purchase price at 7% and this is a balloon loan where I am actually paying extra to finish this loan in 5 years otherwise there is a big payment at the end of the loan or I have to refinance that big payment) My income is very good. My yearly has gone up really well and I expect it to stay that way for many years. My credit score has improved from 650s to low 700s (705). My house is actually appraised at 635k - for local property tax purpose. ( I bought it from the bank) Smaller house right across my house sold for 575k. I got an offer for refinance from bank of america for 4.375 for cash out refinance where they are willing to refinance me for existing appraised value of 635k. Should I go for it? If not what are other options? Should I refinance cash out or just for my existing total mortgage? I would appreciate your input on this. thanks in advance. Dev
Bills.com
February 13, 2012
You should definitely refinance both mortgages, if possible. A balloon payment loan carries many risks, if you are planning on staying in the property, or need to sell it and the price drops. The bank will not use the appraised tax value, but will send an appraiser. The actual appraised value will determine the amount of loan available. It is a good idea to take the new loan for a time frame that allows for comfortable payments and to make accelerated payments, either monthly or in lump sums. I would also advice you to shop around, and get a Bills.com Quick Quote.
Rafaella M.
New Orleans, LA  |  February 10, 2012
We owe 407,000 on our house that we bought in 2008 on a 5.5% mortgage. We refinanced in 2010 with a 5/1 arm at 3.8%. We plan on living here at least another 8-10 years. We're thinking about refinancing again with another 5/5 ARM at 2.8% with $10,000 in closing costs paid through PenFed. The main reason is to lower our monthly payment about $250 p/m for a year and then maybe settle into a fixed rate in about a year while rates are still low. Do you think this is worth doing or should we stay put?
Bills.com
February 12, 2012
It sounds like a good idea to refinance at today's low interest rates, especially to get out of an Adjusted Rate Mortgage. It is not so clear why you would want to get into another ARM, unless you want to benefit from the lower interest rates for the next 5 years. There is certainly no guarantee that rates will be low in a year from now. Also, you don't want to pay heavy closing costs now and then in another year. I recommend that you shop around for a fixed rate mortgage. If you wish to pay less, then you can refinance for a 20-year loan. If however, you wish to save money on the first five years with a 5/5 ARM, then realize that you may lose those savings when it comes time to adjust the interest rate.
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