With so many opinions floating around within our coworkers, friends, and families, knowing when to Refinance can easily feel confusing.  And so many Mortgage Lenders (not my team or me) will always say “right now” is the best time to refinance, because they aren’t concerned about your best interests, they’re only concerned about getting another loan so they can make money for themselves.  I have spent a lot of the last few years since Interest Rates went higher simply telling people NOT to Refinance, because it wouldn’t have made sense for them in their situation, at that time.  So here, I will offer my opinion as a mortgage professional who got into the industry simply out of love for helping people!

So, when does it make sense to Refinance?  The answer to that question also happens to be the #1 answer to ANY question in business:  “It depends.”  Whether your goal is to lower your monthly payment, or to pay off your home faster, or to tap into your equity, among countless other reasons, Refinancing your mortgage can be one of the smartest financial moves you make, but only if the timing is right!

As an experienced loan officer licensed in multiple states, I’ve helped countless homeowners decide whether refinancing was the right step for them. Here are the most common situations when refinancing your mortgage makes sense:

1. You Want to Tap Into Home Equity

If you’ve built equity in your home, refinancing allows you to access that equity in the form of cash.  A cash-out refinance or a Home Equity Line of Credit (HELOC) can be a smart way to fund home improvements, pay off high-interest debt, or cover major expenses like education costs or vacations, etc.

I know we all got spoiled with those once-in-a-lifetime super low rates during Covid, but rates are back to historical averages right now.  They could go down more, but they could also go up more.  I can be somewhat perplexed when i hear folks say they don’t want to consolidate there debts through a cash-out refinance because the mortgage interest rate is high, all while they will carry high-interest credit cards and/or personal loans that can be charging them 3 times, 4 times, or even 5 times the interest rate!  A cash-out refinance, even at today’s 6–7% range, could allow you to consolidate debt and lower your total monthly expenses.

2. You Want to Remove Private Mortgage Insurance (PMI)

If your home has increased in value or you’ve paid down enough of your loan, refinancing can help you eliminate PMI.  If you purchased your home with less than 20% down, once you achieve 20% equity, you can request an appraisal and have your PMI dropped.  This can save you hundreds of dollars each month, even if your interest rate is slightly higher, making refinancing an excellent financial decision.

You will have 20% equity when your mortgage balance is 80% or less of your home’s value.  So, if you know the current value of your home, take 80% of that value, and if your mortgage balance is less than or equal to that number, you can drop PMI.  For some folks, an easier calculation is to take 25% of your mortgage balance, add that to your balance, and if your home’s value is at least that number, you’re good.

3. You’re Ready to Pay Off Your Home Faster

Switching from a 30-year loan to a 15-year loan may increase your monthly payments, but it can save you a significant amount in interest over time. Homeowners who are financially comfortable often refinance to shorten their loan term and build equity faster. Shorter loan terms often come at lower interest rates too, saving you more money than a longer loan term would.

4. Interest Rates Have Dropped

One of the biggest reasons homeowners refinance is to take advantage of lower interest rates. Depending on your situation, even a reduction of just 0.5% can save you thousands of dollars over the life of your loan. If rates are lower than when you purchased your home, it’s worth running the numbers.  If you let me run the numbers for you, you can be assured that I will be honest and tell you to wait if I don’t believe it is the right time for you.

5. You Want to Lower Your Monthly Payment

Refinancing into a new with a longer term can reduce your monthly payment.  For example, if your mortgage started out as a 30-year mortgage and you have paid on it for 5-years, you have 25 years left to pay off the new balance that remains.  You can refinance that current balance over 30-years instead of the 25-years you have remaining.  The same amount of money spread over 30-years is less than if it is only spread over 25-years.  “More time to pay loans back can be a great thing for Jack!”

Couple that with a lower interest rate and/or removing PMI, and wow – the 1^st of the month will certainly feel a whole lot better!   This extra breathing room in your budget can help you pay off other debts, save for retirement, or simply enjoy a little more financial flexibility.

6. You Want to Switch Loan Types

Sometimes homeowners refinance to move from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage for more stability, or vice versa if they expect to move in a few years and want the benefit of a lower ARM rate.

When Refinancing Might Not Be Worth It

Refinancing isn’t always the right move. If you’re planning to move soon, have very little left on your mortgage, or the savings just don’t outweigh the closing costs, it may be best to wait.  This is often the case also for folks with mortgage balances at around $100,000 or less – you can drop your interest rate in excess of a full 1%, but the difference in the monthly payment may not be that significant.  There are closing cost with a refinance; those costs can typically be rolled into the new loan balance so you don’t have to pay anything out of your pocket to refinance, but you want to make sure the extra money you’re investing (those closing costs) to do the Refinance will be recovered through the monthly savings in a reasonable period of time.

Are You Ready to Refinance?

Refinancing your mortgage can be a powerful financial tool, but the key is timing and strategy. If you’re considering refinancing, it’s best to sit down with a mortgage professional like me who can review your situation, run the numbers, and help you decide if now is the right time for you.

If you’re curious about whether refinancing makes sense for you, call or text me today on my cell phone at (214) 542-4095 or email me today at Rob@TeamRobHomeLoans.com. I’d be happy to review your options and show you how you could potentially achieve your financial goals.