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The biggest debt that most people have is their mortgage. Homeowners continue searching for ways to lessen their debt and this is when they think about refinancing. Refinancing allows them to get a new mortgage in order to replace the old one. The aim is to have lesser monthly payments and lower interest rates or to have cash for other purchases like remodelling or a new car. Refinancing looks good to most homeowners and maybe to you too. But is it right for you?

How long will you stay in your home?

Refinancing might not be right for you if you plan to leave your home within the next five years. Refinancing has closing costs and these costs can easily outweigh the benefits. After five years, you typically break even and that is the time when you’ve already paid refinancing costs.

Does your current mortgage have a prepayment penalty?

There are a lot of mortgages that carry a penalty should the homeowner pay off the existing mortgage. Thus, you need to find out if a prepayment penalty will be charged to you. This amount differs and can sum up to your interest payments for a couple of months. Make sure that you ask your lender about it.

Will it lessen your tax savings?

If mortgage interest is claimed on a tax return, you are going to have lesser mortgage interest to subtract once you refinance to a lower rate. The best thing to do is to speak with a tax advisor to know if refinancing will increase your overall savings.

Can you build equity faster?

Going for a mortgage with a shorter term is sensible for a homeowner who has the capacity to have higher monthly payments than the time he or she refinances. One can save a substantial amount of money when the term is shorter as the interest rate is lower.

Can you reduce your monthly payments?

If there has been a change in your cash flow, you can probably get lower monthly payments if you refinance and go for a longer term. It will increase the interest, but it will also provide relief considering the current state of your finances.

Can you cash out on some of the equity?

Getting a mortgage that has a bigger principal can give you cash that can be used no other project such as home remodelling or a vacation or a new car. This gives you a lower interest rate compared to using a credit card or obtaining an unsecured cash loan. Refinancing is a good option if the present interest rate is lesser than the existing rate.


The thought of refinancing can sometimes be overwhelming for some homeowners. Before you even decide to do it, make sure that you are fully aware of its benefits. Do not forget to ask your lender anything that isn’t clear to you. The best time to go for refinancing is when the benefits outweigh the costs. Don’t just refinance because you want to. There is a right time for it and that’s exactly when you should decide to refinance.