Refinancing your mortgage can save you thousands of dollars, but it's not always the right move. This guide will help you decide when to refinance and how to do it.
What is Refinancing?
Refinancing means replacing your existing mortgage with a new one, often with better terms. The new loan pays off the old one.
When to Refinance
- Interest rates have dropped significantly (usually 0.5-1% or more)
- Your credit score has improved
- You want to change your loan term
- You want to switch from adjustable to fixed rate
- You need to tap into your home equity
- You want to remove PMI
Types of Refinancing
Rate-and-Term: Lower your rate or change term without cash out.
Cash-Out: Take out more than you owe and receive the difference in cash.
Costs of Refinancing
Refinancing costs 2-5% of the loan amount in closing costs. Calculate your break-even point to see if it's worth it.