Skip to main content
Teal Diagonals Background

Should You Refinance Your Mortgage?

If you’ve owned your home for a while, the question has probably crossed your mind — “Should I refinance?”

Home mortgage refinancing means taking out a loan to pay off your existing mortgage.

For instance, if you have an adjustable-rate mortgage or your monthly payments are becoming unmanageable, refinancing may be able to lower your monthly payments, shorten the term of your loan, or offer a bit more financial security. Like your original mortgage, refinancing requires lender approval and has costs associated with the application and closing processes.

Own Home Mortgage Refinancing
Own Calculator Icon

Refinance calculator 

Use our online refinance calculator to explore how mortgage refinancing could affect you.

Try it

Reasons to refinance

As interest rates change, you may be able to refinance at a lower rate than you have with your current mortgage. This could decrease the amount you pay each month, reduce the total amount of interest you pay over the life of the loan, or both. Keep in mind, your exact interest rate will be based on multiple factors, including market conditions and your credit score.

Equity — which is the difference between what your home is currently worth and the amount you still owe on your home loan — determines the profit you can make when you sell your home. You may be able to build equity faster by refinancing with a shorter-term loan — changing from 30 years to 15 years, for example. Although your monthly payments may increase in this scenario, the total amount you’ll pay over time will typically be lower because you’ll be paying less interest overall.

If your current loan is an adjustable-rate mortgage (ARM), refinancing to a fixed-rate mortgage may offer more financial stability by making your monthly payments more predictable. For an ARM, the required monthly payment amount can change over time, which may cause financial difficulties. Refinancing can lock in a regular monthly payment.

Refinancing your mortgage may be a cost-effective way to pay for home renovations. Special refinancing options combine the cost of both the home itself and any new renovations into a single mortgage with a single monthly payment. This simplified financing makes it easier to upgrade your home and may even increase its value.

You can take advantage of the equity you already have in your home with a cash-out refinance, which provides cash for renovations, reducing other debt, or other purposes. The cash you receive is added to the total balance of your new mortgage loan. A cash-out refinance is likely to reduce the amount of equity in your home, extend the time it takes to pay off your mortgage, and require you to pay more total interest — so consider carefully before pursuing this option.

Other considerations

Think of refinancing your home mortgage as an investment. As with any investment, it’s important to consider the costs, benefits, and risks.

Because refinancing involves replacing your current mortgage with a new one, there are likely to be costs associated with it, just as there were when you got your current mortgage.

Some lenders may offer an option to refinance without paying these fees up front, but that usually means rolling them into the balance of the loan. That means you’ll be paying for them later — plus interest.

Make sure all these costs are worth the benefits before you decide to refinance.

Questions to consider

  • How long will it take to recover the money you invest in refinancing costs? 
  • How long do you plan to stay in your home? 
  • Are you refinancing to decrease your monthly payments? 
  • Is your goal to decrease the amount of interest paid over the life of your mortgage? 
  • Are you hoping to ensure your mortgage payments don’t change over time? 
  • Will refinancing impact my income taxes?

Don’t forget to think about the effects of refinancing on your loan term.

If you made payments on a 30-year mortgage for 10 years and then refinance into a new 30-year mortgage, your monthly payments will likely go down. However, you’ll grow equity more slowly, and it will take longer to pay off your mortgage loan. 

Next step

Talk with a lender

A mortgage lender can help you understand the pros and cons of refinancing for your specific situation. You can choose the lender you already worked with for your existing mortgage or find another one. Different lenders may offer different loan terms, so it’s a good idea to contact several before choosing one. 

Own Talk to a Lender

More to explore