When to Refinance a Mortgage¹: Does it Make Sense for You?

Refinancing your home loan can help lower your monthly payment, reduce your loan rate, or even decrease your total payment amount. We’ll help you understand the pros and cons of refinancing so you can evaluate when to refinance your home.


When is the Right Time to Refinance Your Mortgage?

Every homeowner’s situation is unique: what might be the right time to refinance for one homeowner may not be the right time for another. When can you refinance a mortgage? Typically, you will want to refinance your home loan if your property’s value has increased significantly. It’s also a good time for refinancing when interest rates are lower than the rate you have on your current mortgage.

Most homeowners see the greatest benefit to refinancing when they do so earlier in their mortgage term. This is when more of your payments are going toward interest and refinancing into a loan with a lower interest rate can help you lower your monthly payments or make it easier to pay your loan off faster.

However, there might be times when refinancing at a higher rate may make the most sense. For example, you might need to complete extensive home improvements but don’t want to put the purchase on a credit card or apply for a personal loan. Refinancing your mortgage and using the equity in your home to pay for those renovations may be more practical. Interest rates on mortgages can be lower than other loans so that you essentially save more in the long run.


Is Now a Good Time to Refinance Your Home?

When is it a good time to refinance a home? Every homeowner’s situation is unique; while it might be a good time for some homeowners to refinance, waiting could be a better choice for others. So, what should you consider as you weigh your options? Here are a few things you should think about before you start applying for a mortgage refinance.


Your Current Interest Rate

Refinancing your home loan can save you money by lowering the interest you pay over the life of the loan.

Before you start applying for a mortgage refinance, take a look at your current rate. If it’s higher than the rates you’re seeing at your credit union or preferred lender, refinancing might be a great option. You could lock in a lower rate once the refinance is complete.

But if your rate is lower than the rates that lenders are offering, you may want to wait to refinance. This will let you keep your lower interest rate until market conditions change.


If You Have a Prepayment Penalty

Some lenders impose a prepayment penalty, which is charged if a borrower pays their loans off in full before the end of the term. This helps lenders recoup some of the interest they’d usually receive if you continued making payments for the entire loan term. Prepayment penalties may apply if making extra mortgage payments, refinancing your mortgage, or selling your home.


How Long You Will Stay in the Home

Refinancing is typically best for homeowners who plan on staying in their homes for at least several years after refinancing their mortgage. That’s because you will pay closing costs when you refinance; depending on how much you’re borrowing, those costs can be expensive. If you’re planning on buying a new home in the near future, you may want to wait to refinance. But refinancing might be a good idea if you’re staying in your home for a few more years.



Why Should you Refinance your Home?


To Increase your Cash Flow

Refinancing your home can free up some money in your budget by reducing your monthly payments.

To Reduce the Total Amount you Pay

If you want to pay off your home sooner and lower the total amount of interest you’re paying, refinancing for a shorter loan term can be the right choice. It’s best to keep an eye on interest rates. If interest rates drop or you can take advantage of an offer, you could keep your monthly payment about the same as it is now and pay off your home a few years earlier. Doing this could reduce the amount you pay in interest over the lifespan of the loan.

To Take Cash Out

Taking cash out means receiving a one-time cash payment during refinancing. If your home has increased in value, refinancing can help you take advantage of that increase in equity. If you refinance, you can use the additional equity to help pay off other high-interest debts or pay for big purchases like a wedding, college education, or home renovations.

Ready to refinance your home loan? Start your application online now.



Membership eligibility is required.
¹All loans are subject to credit qualification and approval. The property must be located in Texas or New Mexico. Certain fees and conditions apply.