Refinancing 101: When It’s Worth It and When It’s Not

Refinancing your mortgage can be a smart financial move—but it’s not always the right one. Whether you're looking to lower your monthly payment, shorten your loan term, or tap into your home’s equity, understanding the when and why of refinancing is crucial. Let’s break down when it’s worth refinancing—and when it might cost you more in the long run.

Refinancing - When its worth it and when its not

When Refinancing Is Worth It

1. Interest Rates Have Dropped Significantly

If mortgage rates have dropped since you first secured your loan, refinancing could lower your monthly payment and save you thousands over the life of your mortgage. A general rule of thumb is to consider refinancing if you can reduce your rate by at least 0.4% to 0.6%.

2. Your Credit Score Has Improved

A better credit score can mean better loan terms. If your credit profile has improved since you took out your original mortgage, you may qualify for a lower rate or better loan products now.

3. You Want to Change Your Loan Term

Switching from a 30-year to a 15-year mortgage can help you pay off your home faster and save on interest—if you can afford the higher monthly payments. On the flip side, extending your term might lower payments during tight financial times.

4. You’re Switching from an Variable Rate to a Fixed Rate

Variable Rates can be unpredictable once the introductory period ends. Refinancing into a fixed-rate mortgage can provide stability and protection from future rate hikes.

5. You Need to Access Home Equity

Cash-out refinancing allows you to tap into your home’s equity for large expenses like home improvements, debt consolidation, or Investment Properties. This can be a cost-effective way to borrow—if done wisely.

When Refinancing Is Not Worth It

1. You’re Moving Soon

Refinancing comes with discharge fees or exit fees and new lender fees, typically $500-$800. If you plan to move within a couple of years, you need to factor these in.

2. The Fees Cancel Out the Savings

Always calculate your break-even point—the time it takes for your monthly savings to cover the cost of refinancing. If it takes five years to break even and you plan to sell in three, it’s probably not worth it.

3. You’re Extending the Loan Too Much

Lower monthly payments may seem appealing, but stretching your loan term could cost you more in interest over time. Be sure you’re not sacrificing long-term savings for short-term relief.

4. You’re Relying on a Cash-Out for Unnecessary Spending

While cash-out refinancing can be helpful, using it for luxury purchases or vacations can increase your debt without improving your financial position.

Final Thoughts

Refinancing your mortgage is a powerful financial tool—but only when used at the right time and for the right reasons. Always weigh the pros and cons, consider your long-term goals, and run the numbers carefully.

Still unsure if refinancing is the right move for you? Let’s chat! Contact us for a free mortgage review and personalized advice.

Andrew Nott