Refinancing Decision Guide: Is Refinancing Worth Exploring?
A guide to help homeowners evaluate whether refinancing makes sense, covering goals, costs, break-even analysis, and loan term considerations.
Define Your Goal
Refinancing replaces your existing mortgage with a new loan. Before exploring refinancing, it helps to define your goal. Common goals include reviewing monthly payment structure, changing loan term, changing rate structure, moving between mortgage types, accessing equity, or changing mortgage-insurance structure.
Compare Current vs Potential Loan
Compare your current mortgage with the potential new loan. Consider the interest rate, monthly payment, loan term, remaining balance, and any changes to mortgage insurance. The refinance calculator can help you estimate potential changes.
Understand Costs
Refinancing involves closing costs similar to the original mortgage, which can include an appraisal, title insurance, lender fees, and other expenses. Understanding the costs is essential to evaluating whether refinancing makes sense.
Consider Break-Even
If refinancing involves costs and the new loan creates monthly savings, you can compare those costs to estimated monthly savings to understand an approximate break-even period. This is the point where the accumulated savings would offset the transaction costs. Break-even is an estimate, not a guarantee of savings.
Consider Loan Term
Extending your loan term may lower your monthly payment but increase the total interest you pay over the life of the loan. Shortening your term may raise your monthly payment but reduce total interest. Understanding this tradeoff is essential.
Evaluate Monthly vs Total Cost
A lower monthly payment does not necessarily mean lower total borrowing cost. A longer term may reduce monthly payment while increasing total interest. Consider both monthly and total cost when evaluating refinancing.
Questions to Ask a Loan Officer
What are the estimated closing costs? How long do I expect to keep the property? How long until potential monthly savings would offset transaction costs? Would extending the term increase total interest? How do the new loan terms compare with my current mortgage?
FAQ
Common Questions
Does refinancing have closing costs?
Yes, refinancing typically involves closing costs similar to the original mortgage. Your loan officer can provide an estimate of the costs.
What is a break-even point?
If refinancing involves costs and the new loan creates monthly savings, the break-even point is where accumulated savings would offset the transaction costs. It is an estimate, not a guarantee.
Should I refinance if I may move soon?
If you expect to sell the property before reaching the break-even point, refinancing may not make sense. Consider how long you expect to keep the property and the loan.
Programs
Related Loan Programs
Refinance
Homeowners looking to replace their existing mortgage with a new loan
Learn moreFixed-Rate Mortgages
Homebuyers who want a consistent monthly principal and interest payment
Learn moreAdjustable-Rate Mortgages
Homebuyers who may want an initial fixed period followed by rate adjustments
Learn moreCalculators
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Have Questions About Your Mortgage Options?
Connect with a licensed Coastline Mortgage loan officer to discuss your goals and take the next step.