The Pros and Cons of Refinancing Your Mortgage

When interest rates were in a free-fall during the Great Recession, refinancing was a no-brainer. Now, with rates on the rise, deciding whether to refinance requires a bit more thought. This is not to say there aren’t still many good reasons to refinance your mortgage. You just want to be sure you’re clear about your reasons and what you hope to gain by doing so.

Refinancing: The Pros*

• A lower interest rate means you’ll pay less interest over the life of the loan
• Reduce your monthly mortgage payment and improve your cash flow
• Consolidate credit card debt, other loans, even a second mortgage
• Take cash out for home improvements or other unexpected costs
• Drop your monthly mortgage insurance premium and save
• Convert an adjustable rate mortgage to a fixed rate for more manageable monthly payments and cash flow
• Extend the term of your loan for a lower, more affordable monthly payment
• Shorten the term to pay off your loan more quickly and save on interest

*These are all possible advantages when it comes to refinancing, but they wouldn’t all apply in every situation.

Refinancing: The Cons

• You will have to go through the application process
• Pay the cost of the appraisal
• A new credit check will be run
• You‘ll need to pay closing costs and any upfront fees
• You’ll need to pay prepayment penalties on your current loan, if applicable

What Else You Should Know About Refinancing

In addition to the pros and cons above, there are other equally important factors to consider before choosing to refinance your mortgage, such as:

• Your current mortgage and interest rate
• How long you plan to remain in your home
• How long you’ve had your current mortgage
• The current condition of your credit
• The total cost of refinancing and the amount of time it will take get a return on your investment

Refinancing: The Bottom Line

Before you refinance be sure you’ve identified what you hope to achieve:

• How much will you save by getting a better rate — and is it worth the cost?
• Are you willing to pay more each month to consolidate loans and lines of credit?
• Do you have enough equity in your home to drop mortgage insurance?
• Does refinancing to pay for home improvements make more sense than opening a home equity line of credit?
• Would you be willing to take a slightly higher interest rate if the lender would roll closing costs into the loan?

Refinancing your home is a great idea as long as the benefits are worth the cost. So, before you decide to refinance, do your research, compare multiple lenders to find the best deals, and don’t plan on moving anytime soon.