By Bill Lyons | Published on November 25, 2024
TABLE OF CONTENTS

    KEY TAKEAWAYS

    • Refinancing can help you save money by securing a lower interest rate, reducing your monthly payments, or eliminating private mortgage insurance (PMI).
    • Knowing when you should refinance your mortgage depends on factors like interest rates, your timeline for staying in the home, and your financial objectives.
    • Rate-and-term refinancing can help lower payments or shorten your loan term, while cash-out refinancing provides cash for big expenses.
    • Refinancing isn’t always the right choice. Watch for high closing costs, prepayment penalties, and minimal rate differences that could offset potential savings.

    Why Refinance Your Mortgage?

    Refinancing your mortgage can be a strategic financial decision that helps you save money and achieve your financial goals. Here are some common reasons homeowners choose to refinance their mortgages.

    Eliminate Private Mortgage Insurance (PMI)

    A common reason for refinancing is to remove private mortgage insurance (PMI). PMI is typically required on traditional mortgages if your down payment was less than 20% of your home’s value, adding an extra cost to your monthly payment. If your home’s value has increased and/or you now have at least 20% equity, refinancing can be a way to drop PMI and significantly reduce your monthly costs.

    Qualify for a Lower Rate

    Improving your credit score can open up new opportunities for lower mortgage rates. If you’ve worked hard to boost your credit or your financial situation has improved, you may now qualify for a lower rate. This could be especially valuable if you’re looking to refinance an investment property and lower your overall expenses.

    Switch From an Adjustable-Rate Mortgage to a Fixed-Rate

    Switching from an adjustable-rate mortgage (ARM) to a fixed-rate loan is another compelling reason to consider refinancing. With an ARM, your interest rate can fluctuate over time, potentially leading to higher payments down the line. When you refinance an adjustable-rate mortgage, you can lock in a stable payment and protect yourself from future rate increases.

    Access Cash for Expenses

    Refinancing can provide you with access to cash for big expenses. Whether you’re refinancing for home improvements, paying for college tuition, or covering medical bills, a cash-out refinance lets you use your home’s equity to fund your goals. This option can help you manage significant financial obligations while still maintaining your mortgage.

    Take Advantage of an Interest Rate Drop

    When interest rates drop significantly, it often prompts homeowners to consider refinancing. Lower rates mean that you can secure a more affordable mortgage, which can lead to substantial savings over time.

    Add or Drop a Borrower

    Another reason to refinance is to add or drop a borrower from your mortgage. This can be especially helpful if you’re going through a life change, such as a marriage or divorce, and need to adjust the mortgage to reflect the new situation.

    How to Tell When It’s Time to Refinance

    Knowing when to refinance your mortgage is specific to your situation and financial goals. While comparing your current mortgage rate to today’s rates is essential, several other factors play an important role in your decision. Consider the following points to determine if refinancing is the right move for you:

    • Cost of refinancing: Calculate how much it will cost to refinance, including closing costs and fees.
    • Savings justification: Assess whether refinancing will save you enough money to justify these upfront costs and the effort involved.
    • Duration in the home: Think about how long you plan to stay in your home. If you’re moving soon, the savings might not outweigh the costs.
    • Alignment with long-term goals: Ensure that refinancing aligns with your long-term financial goals, whether that’s reducing monthly payments, eliminating PMI, or accessing cash for expenses.

    Additionally, it’s helpful to know how long it takes to refinance, as this process can vary depending on your lender, financial documentation, and other requirements. Taking the time to evaluate your specific situation will help you make the best decision.

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    When Shouldn’t You Refinance Your Mortgage?

    While refinancing can offer significant benefits, there are times when it might not be the best choice for you. Understanding when to hold off on refinancing is just as important as knowing when to proceed. Here are some reasons you might decide against refinancing:

    • High closing costs: If the fees associated with refinancing are very high, they may outweigh any potential savings you could gain from a lower interest rate.
    • Short timeframe: If you plan to move within a few years, the costs of refinancing may not make sense.
    • Poor credit score: If your credit score has declined, you may not qualify for better terms, and refinancing could lead to higher rates.
    • Minimal rate difference: If current mortgage rates are only slightly lower than your existing rate, the savings may not justify the costs, time, and effort involved in the refinancing process.
    • Close to paying off your mortgage: If you are nearing the end of your mortgage term, refinancing might extend your loan term and increase the total interest you pay.
    • Prepayment Penalties: If your current mortgage has a prepayment penalty, refinancing could trigger additional costs that negate any potential savings.

    Mortgage Refinancing Options

    You typically have two main options when refinancing your mortgage: rate-and-term and cash-out refinancing. Each serves a different purpose depending on your financial goals.

    • Rate-and-term refinance: This option allows you to adjust the interest rate or term length of your loan. It’s ideal if you want to lower your monthly payments, reduce the interest you’ll pay over time, or shorten your loan term.
    • Cash-out refinance: With a cash-out refinance, you borrow against the equity you’ve built up in your home, often for larger expenses like home improvements or debt consolidation. This option replaces your original mortgage with a new loan for a higher amount, giving you cash based on the home’s current value.

    If you’re self-employed, you may also face unique challenges when refinancing. Griffin Funding can help you navigate a self-employed refinance, offering tailored solutions to meet your financial needs.

    Furthermore, consider a home equity loan if you’re looking to tap into your home’s equity without altering your existing mortgage. This is useful if you’ve locked in a low rate you don’t want to change. Understand the pros and cons of a home equity loan vs refinancing to help you choose the right option for your needs.

    Explore Your Mortgage Refinancing Options Today

    Knowing when you should refinance your mortgage can make a huge difference in your financial journey. Carefully consider factors like your goals, current rates, and the potential savings.

    Griffin Funding is here to support you every step of the way, offering expert guidance to help you make the most of your refinancing options. Plus, with the Griffin Gold app you can easily manage your finances, access smart calculators, and connect with personalized support whenever you need it.

    Still asking yourself, “Should I refinance my mortgage now?” We can help you weigh your options. Whether you’re looking to lower your payments, tap into equity, or eliminate PMI, Griffin Funding has the tools and expertise to help you succeed. Reach out today to explore your refinancing options and start working toward your financial goals.

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    Frequently Asked Questions

    How long do you have to wait before you can refinance a mortgage?

    The waiting period to refinance a mortgage varies based on the loan type, program, and refinancing goal. Generally, for a cash-out refinance, most lenders require you to wait six to 12 months after closing. For a rate-and-term refinance, you may be able to refinance right away if you have a conventional loan. 

    However, other loans may have specific requirements: FHA loans typically allow streamline refinancing after seven months, VA loans require at least six payments or 210 days, and USDA loans generally have a 12-month waiting period. Be sure to review your loan terms for any prepayment penalties that could impact your decision.

    Is right now a good time to refinance?

    Deciding when to refinance your mortgage is specific to you and your financial situation. Consider if refinancing will lower your monthly payments, shorten your loan term, or help you access cash for important expenses. 

    Additionally, evaluate the upfront costs, how long you plan to stay in the home, and whether the savings justify the effort. Ultimately, understanding your personal needs and goals is key to determining when to refinance and making the most of your mortgage.

    How much does it cost to refinance your home?

    Refinancing usually costs between 2% and 5% of your loan amount. Typical expenses include application fees, appraisal costs, title search, and closing fees. For example, if you’re refinancing a $200,000 mortgage, you might pay $4,000 to $10,000 in total fees. 

    Some lenders offer “no-closing-cost” refinancing, where fees are added to the loan balance or covered by a slightly higher interest rate. Before deciding, compare these costs to the potential savings of a lower rate or shorter term to see if refinancing makes financial sense for you.

    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.