When is it time to refinance?

When interest rates drop or home values rise, it may be a good idea to refinance your loan.

Refinancing can help you lower your monthly payments, reduce your total payment amount or even put your home equity to good use. Here we'll help you understand the pros and cons of refinancing so you can evaluate whether it's the right time to consider refinancing.

Refinancing Your Mortgage

When you choose to refinance your mortgage, it means that you are replacing your current mortgage with a new one—with new terms, conditions, closing costs, and maybe a new lender.

When You Should Consider Refinancing

If mortgage rates are falling or your home has dramatically appreciated in market value, you may want to look into refinancing your mortgage.

Generally speaking, one or more of the following conditions needs to be present before you should consider refinancing your mortgage:

 
 

Mortgage interest rates are falling.

When mortgage rates fall, it can be a great time to refinance your home. In this situation, there are two ways to reduce your total borrowing costs over time:

  • You can keep your current repayment term and lower your monthly payments
  • You can keep your monthly payments about the same and shorten your repayment term

Home values are rising.

If your home has gone up in value, refinancing can help you take advantage of the increased equity in your home. For example, if you refinance, you can use the equity to help pay off high-interest debt like credit cards and other types of loans, or pay for big purchases like a wedding or education.

You've been in your home for just a few years.

Refinancing usually makes the most sense in the early years of your mortgage term. That’s because, early on, your payments are primarily going toward interest. In the later years of your mortgage, as you begin to pay more principal than interest, you may be better off keeping your original loan.

 

Remember, refinancing will give you a brand new mortgage to pay off and will take you back to the beginning of the cycle (so you’ll be paying mostly interest again).