There are several factors to consider when asking “Should I refinance my mortgage?” and the pros and cons could fill a book. To save you some time, though, we got it down to just a blog. Before we deep dive into the benefits, let’s start with the basics. What exactly is refinancing? Simply put, refinancing is getting a new mortgage to replace the original. Most people refinance to secure a better interest rate or to shorten the term of their mortgage, but the benefits don’t stop there.
Should I refinance my mortgage? Top 5 reasons to refi
- Lower monthly payments
- Consolidate debt
- Get cash on hand
- Pay off your mortgage faster
- Gain stability
Different types of refinances can help you reach these goals, and some may be better than others for what you have in mind. To understand what’s right for you, let’s break down each benefit of refinancing your mortgage.
1. Lower monthly payments
A lower monthly payment may be the biggest benefit of refinancing a mortgage, but it only works if your new mortgage rate is lower than your original rate. Otherwise, your payment could go up. If you’re interested in refinancing, be sure to keep an eye on the most current rates. Even a small difference in percentages can have a sizable impact on your monthly payment. In addition to decreasing your monthly payment amount, reducing your interest rate can help you save money in the long term and build equity in your home faster.
If lowering your monthly payment is your top priority, a rate-and-term refi is likely the best fit.
2. Consolidate debt
Your debt situation is one of the main factors to consider when refinancing a mortgage. If you have debt in multiple areas, refinancing could help you consolidate it.* Using this method, you can replace multiple loans with one loan, leaving you with one convenient monthly payment. If you’re going to have debt, you might as well make it as simple as possible to deal with, right? The key here is not to accrue new debt once the refinancing has consolidated your old debt.
If debt consolidation is your goal, a cash-out refinance may be your best bet.
*Using your home equity to pay off debts or make other purchases does not eliminate the debt or the cost of the purchases, but rather increases the loan amount of your mortgage to be paid according to your new mortgage terms.
3. Get cash on hand
Want access to more flexible funds? A cash-out refinance can help. This type of refinance allows you to tap into your home’s equity and turn it into cash. Borrowers who refinance often use this money for remodeling or landscaping projects. How does it work? Refinance your existing mortgage into a new one for a larger amount and pocket the difference (minus closing costs). But be advised—lenders usually limit the loan amount of this type of refinance to 80 percent of your home’s equity.
4. Pay off your mortgage faster
If you plan on staying in your current home for a long period of time, it may be a good idea to refinance your mortgage to obtain a shorter term. For example, you may want to refinance your 30-year loan into a 15-year loan. Although your monthly payments will increase, you’ll save money on your overall interest payments and own your home, free of mortgage debt, in half the time.
When paying off your loan sooner is the goal, a rate-and-term refi is usually the right move.
Pro Tip: Use our refinance calculator to see how much a refinance could save you.
5. Gain stability
Most people don’t like surprises when it comes to money. If you’re one of those people who like to know what’s coming ahead of time, refinancing your mortgage could be a perfect fix. One of the pros of refinancing is it can be a great solution for borrowers who are struggling with financial stability. If you started with an adjustable-rate loan, refinancing into a fixed-rate loan can help you make steady payments—especially if you are concerned with inflation and the resulting possibility of higher monthly payments.
Are there any other reasons I should refinance my mortgage?
Everyone’s situation is unique, so your reasons to refi may be different than what we’ve discussed here. One benefit of refinancing your mortgage that sometimes gets overlooked is financing home upgrades. Whether you want to use the cash from a cash-out refinance for this or refinance to a renovation home loan, your mortgage can do more for you than you might think. Reach out to a loan originator anytime to explore your options.
Lower monthly payments are just one of the many great reasons to refinance your mortgage.
