Should I Refinance My Mortgage?

Learn the most common reasons for mortgage refinancing

Homeownership is characterized by major financial decisions at every turn, and refinancing a mortgage can be one of the biggest. This is a decision that can set you up for financial success if done correctly. When you refinance, you take out a new home loan that pays off your first loan and leaves you with a new set of mortgage payments.

Consider the following reasons to refinance a mortgage:

    1. Lower your monthly payments

    This is perhaps the most common reason that homeowners refinance. If interest rates are lower now than when you took out your first mortgage, refinancing could lower your payments. You can also lower your payment by refinancing into a longer term loan. For example, if you have a $250,000 mortgage with a term of 25 years, but you only owe $150,000 now, you could refinance that into another 25 or 30 years. This stretches the payments out, making them smaller but also causing you to pay more interest in the long-term.

    2. Pay off your home faster

    So, rather than pay more interest, let's say you want to pay less in interest and pay the loan in full faster than originally planned. In this case, you may choose a mortgage refinance with a shorter loan term. Homeowners who experience a significant boost in income or credit score, or who finish paying off large debt such as student loans, a second home or vehicles, may choose to put this extra cash toward their mortgage payments.

    3. Refinance into a different mortgage product

    Another common reason homeowners refinance their mortgages is to switch from an adjustable rate mortgage to a fixed rate or vice versa. Depending on your current financial situation, the mortgage you obtained years ago may no longer work for you. For example, if your adjustable rate mortgage is about to increase to a much higher interest rate, you may want the stability of a fixed rate mortgage.

Assessing mortgage refinance fees

Even if you decide that refinancing your mortgage is right for you, remember that there are costs associated with it. Because interest rates and mortgage refinance fees fluctuate, you should analyze the current rate, associated costs and the length of time you plan to stay in the house to be sure this makes financial sense:

  • Interest rate: Opinions vary, but if the interest rate is one to two percentage points lower than your current rate, refinancing can be a good idea. If the difference is smaller, you may find the associated fees are not worth it.

  • Mortgage refinance fees: These can include closing costs, an appraisal fee, attorneys' fees, and fees for credit checks and other paperwork. Before you start the mortgage refinance process, get a list of these fees so you know what to expect.

  • Length of time in the home: For example, let's say your new interest rate can save you $200 per month on your payment but mortgage refinance fees cost you $3,200. In 16 months, you'd recoup those costs. If you moved before then, the refinance would've cost you. Generally, the less money you save per month, the longer you'll have to stay in the home to make it worth it.

Apply for mortgage refinancing with Citizens Bank

If you need more guidance or are ready to refinance your mortgage, you can work with a Citizens Bank home loan originator. Just call 1-888-514-2300. You can also begin the mortgage application process online.


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