How To Know When to Refinance Your Home

Interest rates are often a hot topic in the news and on social media. Whether rates are going up or down is especially interesting if you're considering refinancing your mortgage. So how do you know if now is the right time for you to refinance?

Well, you’re smart to think it through. The first step is understanding how refinancing works.

How home loan refinancing works

Refinancing a mortgage means replacing your current home loan with a new one, typically to secure better terms, lower your interest rate, or change the loan duration. By refinancing, you can reduce monthly payments, save on interest over time, or even tap into your home’s equity for cash.

The process involves applying for a new loan, having your home appraised, and using the new loan to pay off the old one. Refinancing can be a powerful tool for homeowners looking to improve their financial situation, but it’s important to consider the costs, to ensure the benefits outweigh them.

What to know before refinancing your home

Before making any major financial decision, we typically recommend taking stock of your financial situation.

What has changed since you purchased the home? Has your credit score significantly improved? Have you acquired more equity in your home via home renovations or increased property values in your area?

Before you begin the process, gather some details and consider:

• Your current mortgage rate, monthly payment, terms, and payoff date
• Any other high-interest debt you may have (e.g. a second mortgage or credit cards)
• Your current credit rating
• How much equity you have in your home
• Whether you have to pay for Private Mortgage Insurance (PMI)
• How long you plan to stay in your home

Reasons to refinance a mortgage

Next, ensure you understand your “why.” What are your short-term circumstances and long-term financial goals? Consider which of these common reasons to refinance align with your circumstances:

• Consolidating debt
• Getting cash out for home improvement or another expense
• Lowering your interest rate and monthly payment
• Decreasing your payoff term
• Eliminating PMI
• Switching from an adjustable- to a fixed-rate mortgage

Choosing the right lender for your home

Selecting the right lender is key to a successful mortgage refinance. Consider speaking to multiple lenders to compare your options. Start by comparing rates, as even a small difference in interest rates can lead to significant savings over time. Beyond rates, consider fees, loan terms, and customer service.

At Virginia Credit Union, we offer multiple refinancing options, with competitive rates and flexible terms to support your specific goals. Meet with one of our local mortgage experts and they’ll walk you through your options, and every step of the way if you choose to move forward. Plus, at VACU, you can close on your loan within 60 days.

Running the mortgage refinancing numbers

Now that you have all of the details, you can use our refinance calculator to see how much refinancing could save you — and when your all-important break-even point will be. Take note of the associated closing costs. Before moving forward, ask yourself:

• Will the costs required to refinance my mortgage and/or consolidate all of my debts be offset by my financial gains over the lifetime of my new mortgage loan?
• Do the benefits of refinancing my mortgage align with my long-term financial strategies and goals?

If you can answer yes to both of these questions, it may be a good time to explore refinancing. If you determine that now is not the best time to refinance your mortgage, consider other tools that can help you leverage the equity of your home to accomplish your financial goals.

Ultimately, refinancing can be a great solution for many homeowners. As with any big financial decision, consulting with a financial expert can be a great opportunity to ask questions and get more information. VACU members have access to free one-on-one homebuyer counseling through our learning partner, GreenPath Financial Wellness.