Or, check out our cash-out refinance calculator.
Refinancing your mortgage involves taking out a new loan to repay your existing mortgage debt.
You may decide to refinance your mortgage for various reasons, including to lower your interest rate, reduce your monthly payments, or take cash out of your home to use for other purposes such as debt repayment.
When you refinance your mortgage, you want to make sure this decision makes financial sense. Our mortgage refinance calculator can help you understand the impact refinancing will have on your total repayment costs as well as your monthly payment amount.
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Should I Refinance My Mortgage?
There are a number of reasons why taking out a new mortgage might be a good idea. One of the most common reasons is to save money on your current loan.
You could reduce your monthly mortgage payment by refinancing to a loan with a lower interest rate, longer repayment period, or both. You could also save on your total interest costs by refinancing to a lower-rate loan.
However, if you extend your mortgage term, you may end up paying more in interest over the life of your loan depending on the rate and how many months you add to your loan. You’ll need to use the mortgage refi calculator to see how your monthly payments and total interest costs would be affected.
For example, say you got your $200,000 mortgage at a time when interest rates were high and your credit score was low, so you’re paying 5.3%. Let’s assume you have 320 months left on your loan with a remaining loan balance of $192,000.
By refinancing to a 360-month loan at 4.25% and $3,000 in closing costs (including origination fees), you could save $229 per month and $19,587 over the life of the loan. You’ll break even from your refinance fees in 14 months, so as long as you plan to own the home that long, refinancing would absolutely make sense.
Cash-out refinance
You could also take out a cash-out refinance loan in which you increase the amount you borrow. This allows you to tap into the equity in your home to pay down debt or finance home improvements.
Be aware, though, that a cash-out refinance could make your monthly loan payments higher and increase the total interest you pay. If you can’t get a mortgage loan at a lower rate, you’ll increase your costs even further — so depending on what you plan to do with the funds, it might not be the best idea.
Say, for example, you borrowed $200,000 at 4.25% with a remaining balance of $192,000 and 320 months left on your loan. You want to take out a $210,000 loan paid off over 360 months but can only qualify for a 5.25% mortgage rate, and you have to pay $3,000 in closing fees.
In this case, your monthly payments would increase by $114 and you’d pay $97,355 more in mortgage interest over the life of your loan.
This doesn’t make financial sense unless you are somehow going to save $97,355 by refinancing other debt with a cash-out refi.
Read more: Cash-Out Refinance Calculator: How Much Could You Get?
Reasons to Refinance a Mortgage
Some of the most common reasons why people refinance a mortgage include:
- Reducing your total monthly payment: Taking a loan at a lower interest rate or extending the repayment term could result in a lower mortgage payment and create wiggle room in your budget.
- Reducing total interest costs: Reducing your interest rate with a refinance loan should reduce both your monthly payment and total interest costs. If you make your new repayment term longer than it is with your existing home, your monthly payment may be much lower but your total interest costs could be higher.
- Switching loan servicers: If you’re dissatisfied with your current mortgage lender, you may want to refinance so you’ll have a new loan company to deal with.
- Taking cash out of your home: A cash-out refi lets you borrow more than you currently owe so you can tap into your home equity and use the money for debt consolidation, home improvements, or other big expenses.
Reasons Not to Refinance a Home
In some cases, refinancing might not make sense. For example, you may not want to refinance your home under the following circumstances:
- You plan to move soon: If you plan to relocate soon and sell your home, refinancing your mortgage likely wouldn’t make sense because you won’t save enough from lower monthly payments to justify the fees you’ll pay for refinancing.
- You can’t qualify for a lower interest rate: It makes little sense to refinance if your refinance rate is higher than what you currently pay. This could happen if your credit score isn’t as good as it was when you took out your original loan or if interest rates have gone up since then.
Mortgage Refinance Options
If you decide to refinance your mortgage, you have a number of financial institutions you can choose from to get your new loan. This includes traditional banks, online lenders, and credit unions.
Here are a few options to consider if you’re thinking of refinancing. You can also check out the best mortgage refinance companies rated by LendEDU.
SoFi Mortgage
SoFi offers flexibility for homeowners looking to refinance a mortgage, with options for a standard refinance loan, cash-out refi, or cash-out refi focused on repaying student loans.
And if you’re an existing SoFi member, you can save $500 on your mortgage loan or refi processing fees.*
Basic Info
- Credit score: SoFi doesn’t disclose credit score minimums for refinance loans.
- Down payment requirement: 10% down
- Maximum loan amount: $3 million
- Loan options: 30-year fixed; 15-year fixed; 7/1 adjustable rate mortgage (ARM); 5/1 ARM interest-only
- Interest rates: Varies by credit score and loan term; SoFi members get a 0.125% rate discount on any additional SoFi loans
Rocket Mortgage
Rocket Mortgage offers both standard home loans and cash-out refi loans. Here is the information for their Rocket Mortgage Refinance.
Basic Info
- Credit score: Minimum 580
- Down payment requirement: 3%
- Maximum loan amount: $3 million
- Loan options: 30-year fixed; 15-year fixed; 5/1 ARM; 30-year fixed FHA; 30-year fixed VA
- Interest rates: Rates change daily based on the market; go here to see today’s rates
Alliant Credit Union
Alliant Credit Union is one of the largest credit unions in the U.S. and offers various mortgage solutions as part of its lineup of personal lending products. Here is information about the Alliant Credit Union Mortgage Refinance.
Basic Info
- Credit score: Minimum 580
- Down payment requirement: 0% for well-qualified first-time homebuyers; as low as 3% for non-first-time homebuyers
- Maximum loan amount: $2 million
- Loan options: 30-year fixed; 15-year fixed; 20-year fixed; 3/1 ARM; 5/1 ARM; 7/1 AMR; 10/1 ARM
- Fixed interest rates: 3.620% APR to 4.892% APR depending on the loan type
Bottom Line
If you’re undecided about whether refinancing your mortgage makes sense, use our mortgage calculator to get an idea of how much you could save.
If you plan to live in your house long enough to break even on the fees you’ll incur, it might make sense for you to refinance. Just be sure to shop around to find the perfect lender.