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Refinancing

Refinancing your mortgage can help you get equity, or value, from your home or build equity faster. People usually refinance when interest rates are better than the rates they got on their current mortgage loan. Equity is often used to pay for education or home improvement.

When you refinance, you’re replacing your current mortgage with a new mortgage. Your new mortgage may be the same size as your original mortgage, or you may take out a larger amount to get additional equity out of your home. If you don’t have enough equity in your home, you will not be able to refinance and receive cash from the new loan. But if interest rates have dropped you still might be able to lower your payments.

When refinancing, remember these three points:
  • Term matters. If you’ve almost paid off your mortgage, it doesn’t make sense to refinance and start over again with a 15-, 20-, or 30-year mortgage. If you’ve paid off half of your mortgage, you may want to refinance with a shorter-term mortgage loan or consider a home equity loan.

  • The mortgage amount and interest rate matter. A bigger mortgage at the same interest rate will cost more each month. This is why it usually makes sense to refinance when interest rates drop at least two percentage points below your current rate and you don’t plan to sell your house for a few years.

  • Refinancing costs money. Refinancing is a lot like closing a new mortgage. And that means paperwork, time and closing costs, even if you’re refinancing with the same lender. This can cost you hundreds or thousands of dollars.