Bills Logo

Should I Refinance My Home

Should I Refinance My Home
Betsalel Cohen
UpdatedAug 31, 2022
  • clock icon
    5 min read
Key Takeaways:
  • Examine your costs, as well as your savings, before deciding to refinance.
  • Define your goals, to make sure that refinancing will meet them.
  • Research rates and compare banks and lenders, if you want to get a refinance mortgage loan.

Does refinancing my home make sense? Get the answers to "should I refinance my mortgage"?

Refinancing your home can be a great way to save money or improve your financial situation. However, before you refinance, you need to determine if you are refinancing for the right reasons and if the market conditions are right for refinancing. For a successful refinance, it is also important to locate a lender who will work as your partner when you ask yourself, "is it the right time to refinance my home?"

Your home is most likely your most significant investment. So, deciding to refinance your home is not to be taken lightly. To help you decide whether refinancing makes sense, start by reviewing the basic reasons to refinance. Learn why other people refinance their homes when refinancing may not be the best decision, so you can determine if refinancing is right for you. Before you decide to refinance, define your goals.

Four reasons to refinance your home

1. Lower your monthly payment

Refinancing can be an effective way to save money on your monthly mortgage payment. Refinancing can save you money each month by lowering your interest rate and the size of your monthly payment.

2. Lower your total costs

refinancing can help you pay off your loan faster and significantly reduce the total interest you pay. Many people are refinancing to shorter-term loans, such as a 15-year loan, to save money over the long term. Refinancing to a shorter period could increase your payment, so be careful about taking on a payment that could be difficult to afford. It may make sense to refinance at a slightly higher interest rate for a longer term and then accelerate your payments to pay off the loan faster.

3. Reduce Your Risk: Change an ARM to a Fixed-Rate Mortgage

A good reason to refinance can be when you have an adjustable-rate mortgage (ARM) and refinance to lock into a fixed-rate mortgage. This protects you from an increase in future interest rates, which would cost you money and may make it harder for you to afford your mortgage payment. Many people are taking advantage of the low rates available to refinance their ARMs into a fixed-rate loan 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.

4. Cash-out Refinance: Getting Money Out of Your Home

Another reason to refinance is to get money out of your house through a cash-out refinance. This type of refi allows you to access the equity in your home to use that money for other purposes. Popular reasons to do a cash-out refinance include: consolidating debts with a higher interest rate than the new loan, making home improvements, and paying for college costs. Of course, any time you take equity out of your house, you want to make sure you assess the risks involved. Be careful that your new mortgage payment is affordable, so you don't jeopardize your house.

Two Reasons

A refinance is not an easy fix to complicated problems or 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. An important factor is how much refinancing will cost you. Compare your costs to your savings. Lender closing costs and third-party fees can add up to several thousand dollars, preventing the refinanced loan from saving you money. Make sure to weigh whether you are adding years to your loan by resetting the clock to a 30-year term when you have fewer years left on your current loan.

It would be best 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 unsure where you stand.

2. Cashing Out for the Wrong Reason

Using the equity in your home to finance a purchase or expense should only be done for important reasons. Millions of Americans used their homes as piggy-banks, during the period of time when home values were rising year after year. People used equity to finance vacations or to spend on frivolous purchases.

Before taking cash out of your home, make sure the cost is worth the benefit. Any time you pull out equity, you increase the risk of losing your home. Using equity for home improvement projects can increase the value of your house, though you rarely get a return equal to what you spent on the improvements. Don't use your home as a piggy-bank. Using equity for luxury purchases saps the value of your home.


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


BBrad Stroh, Jul, 2014
Thank you for the refi tips!
JJennifer, Oct, 2012
In 2009 we were able to do a modification after much stress, lawyers, and fees. Our balance was $135,000 but after fees and such this became $145,000. But we were grateful we could save our home. This month we were going to refi with our lender, which we were lead to believe would be easy and of course costs us about $2,000. This week we were told that since we are still above the $135,000 level we can not refi even though they tacked on the fees and such to our loan. I started searching for other lenders to refi with and were told that since it is a temporary modification they cannot help us. Why? What does this have to do with anything?
BBill, Oct, 2012
Jennifer, Your current lenders seems to be saying that your LTV is too high. Maybe that is the reason other lenders are not willing to work with you? I think the best solution is to call more lenders and pin anyone down who tells you that it is the temporary status of your loan mod that is preventing you from refinancing.
DDara, Jul, 2012
I have a 5.75% 30-year fixed on my house. The loan is about $350,000. I want to refi to a lower interest rate, but the value of my house has dropped almost to what I owe, a bit more than that luckily. I am not underwater, but would like to know if I should bother to refi to a lower rate? I am not selling anytime in the next 15 years.
BBill, Jul, 2012
Look into refinancing, given that mortgage rates are at an all-time low. Maybe a HARP loan would be a possibility. It does not require that you be underwater and would be a way of avoiding PMI, if you currently don't have PMI.
BBrian, Jun, 2012
I purchased my home 3+ years ago for $188,000 @ 4.875%. I was thinking about refinancing to 3.75% my question is since I first gotten my mortgage my credit score was around 730, now (after i got a divorce) my credit score is about 100 points lower. How will this reflect if I want to refinance?
BBill, Jun, 2012
The drop in your credit score could prevent you from qualifying for a conventional refinance loan. I suggest you speak with your current lender, to see if it will offer you a streamline refinance. Your credit may not be as big an issue with them, as long as you've never been late on a mortgage payment.

Other than that, you could look at an FHA loan, as FHA loans have less strict credit score requirements than conventional loans. You probably need a 620 credit score with most FHA lenders, although there are some that accept scores as low as 580. Make sure to factor in the costs for upfront Mortgage Insurance Premium (MIP) that come with an FHA loan.
LLois, May, 2012
Bought my 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 ask?

BBill, May, 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.