Should You Refinance? How to Decide if It Makes Sense

Every so often it is smart to give your mortgage a checkup. Your income, your goals and your home’s value change over time, and the loan that made sense when you bought may not be the best fit today. Refinancing is one way to bring your mortgage back in line with your plans.

Common Reasons Homeowners Refinance

• Lower monthly payment: A lower rate or a longer term may reduce what you pay each month, depending on your situation.
• Pay the home off sooner: Moving to a shorter term can cut the total interest you pay, though the monthly payment is often higher.
• Tap your equity: A cash-out refinance lets you borrow against the value you have built for renovations, education costs or paying down higher-interest debt.
• Trade an adjustable rate for a fixed one: If you have an ARM and want predictable payments, switching to a fixed-rate loan can bring peace of mind.

Weigh the Costs Against the Benefits

Refinancing comes with closing costs, much like your original loan. A simple way to judge whether it is worth it is to find your break-even point: divide the total cost of the refinance by the amount you would save each month. The result is roughly how many months it takes to recover those costs. If you plan to stay in the home well beyond that point, a refinance may make sense.

Also think about where you are in your current loan. Starting a new long term late in your existing one can lower your payment but increase total interest over time. Your loan officer can show you side-by-side comparisons.

A few other questions are worth asking yourself before you apply:

• How long do you realistically expect to stay in the home?
• Has your credit improved since you took out your current loan?
• Has your home gained value, which could help you drop mortgage insurance or qualify for better terms?
• Are you comfortable with the payment if you choose a shorter term?

What the Process Looks Like

1. Review your current loan: Note your rate, balance, remaining term and any mortgage insurance.
2. Define your goal: Lower payment, shorter term, cash out or more stability.
3. Talk with a loan officer: Compare options and get a Loan Estimate.
4. Gather documents: Expect to provide income, asset and property information, similar to when you bought.
5. Appraisal and closing: Most refinances include an appraisal before you sign your new loan.

Rates and market conditions move up and down, so the right moment depends more on your numbers than on headlines. Learn more on our refinance page, or explore a HELOC if you only want to tap equity and keep your current first mortgage.

Curious whether a refinance could help you? A FLO Mortgage loan officer can run the numbers with you, no pressure. Reach out to our team to get started.

This article is for general education and is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines and program availability. FLO Mortgage, Company NMLS #1835856. Equal Housing Opportunity.