Open Menu
Close Menu
7 signs you’re ready to refinance your mortgage Feature Image
Posted on April 14, 2022 6 minute read

7 signs you’re ready to refinance your mortgage


What's in this article?

You want a lower interest rate or a lower monthly payment
Jump
You want to do home upgrades or complete renovations 
Jump
You want to stop paying mortgage insurance 
Jump
You’ve improved your credit score
Jump
You want to consolidate your debt or other loans
Jump
You want to purchase an investment property
Jump
You want to switch to a fixed-rate mortgage
Jump
Next steps: How partnering with Homefinity can help
Jump

In recent years, Americans enjoyed some of the lowest interest rates on record. With rates rising, new homeowners are wondering if now is the right time to refinance. 

If you’re thinking about mortgage refinancing but aren’t sure now’s the time, we’ve put together a list of seven mortgage refinance signs that could mean you’re ready to refinance your mortgage.

You want a lower interest rate or a lower monthly payment

Taking advantage of lower interest rates or wanting a lower monthly mortgage payment is among the most popular mortgage refinance signs for many homeowners. 

Lowering your interest rate not only reduces your monthly mortgage payments but it also decreases the amount you pay for your house over the lifetime of your mortgage. 

Lower mortgage payments also free up more of your money for other purposes, allowing you to put funds into an emergency, retirement, or tuition account.

While mortgage rates are rising, they are constantly changing, and it is worth inquiring to see what current rates are. 

Homefinity offers personalized interest rate quotes online.

Want more personalized rates?

Get customized rates tailored to your individual mortgage needs.

See Today’s Rates

You want to do home upgrades or complete renovations 

Another one of the more popular reasons to refinance is to update or repair your home. 

A cash-out refinance can help you do this by tapping into your home’s equity for a cash loan. Cash-out refinance allows homeowners to make improvements and upgrades to their homes. 

Often, homeowners want to make modifications to their home to accommodate aging parents moving into a basement apartment, earn passive income by renting out part of their home, or increase energy efficiency by replacing windows or doors. 

Cash-out mortgage refinancing depends on several conditions, such as your choice of lender, requirements of specific programs (such as VA refinance, FHA streamline refinance programs), or other factors such as your home’s value. 

You want to stop paying mortgage insurance 

Like the Federal Housing Administration (FHA) loan, some home mortgages require homeowners to pay mortgage insurance as part of their mortgage contract. 

Many homeowners find they can stop paying mortgage insurance by refinancing their mortgage.

If homes in your neighborhoods have increased in value, the value of your home has likely increased as well. If you have at least 20% equity in your home, you have an opportunity to get rid of mortgage insurance.

By refinancing your mortgage into a conventional mortgage—which doesn’t automatically require borrowers to pay insurance—you can often lower your monthly payment and pocket the extra money each month. 

You’ve improved your credit score

The market affects the mortgage rates you are eligible to receive, but your financial health also factors significantly. 

For example, if you’ve worked hard to improve your credit score and made all your monthly mortgage payments (in full), you may be ready to refinance your mortgage. 

Your improved credit score and sound financial health can result in more competitive rates, smaller mortgage payments, or better loan terms.

You want to consolidate your debt or other loans

Low mortgage rates can make cash-out refinancing attractive for homeowners that want to pay off debt. 

A cash-out refinance allows you to consolidate multiple debts into a single monthly payment by tapping into your home equity. 

You can generally borrow up to around 80% of your home’s value. Homeowners can then use those funds to pay off any outstanding debts.

FHA and mortgage Insurance

Many homeowners can stop paying mortgage insurance after refinancing. 

But, it’s important to remember that if you used an FHA loan to purchase your home and take out more than 20 percent of its equity, you would likely have to continue paying the insurance. 

A loan officer can review your initial mortgage and provide guidance to help you make the best choice for your financial future.  

You want to purchase an investment property

If you are interested in purchasing a second property, a cash-out refinance can help you cover the cost of a down payment. 

With a cash-out refinance, you aren’t restricted to the type of property you want to buy. 

For example, you could use the additional funds for an investment property that you rent out to a tenant or a vacation rental property, like an Airbnb. 

You want to switch to a fixed-rate mortgage

Adjustable-rate mortgages (ARM) typically offer interest rates that are initially lower compared to fixed-rate mortgages. 

But ARMs are occasionally adjusted, reflecting current market changes. Swapping your ARM for a fixed-rate mortgage can mean lower interest rates—while eliminating the stress associated with unexpected rate hikes.

Adjustable-rate mortgages

For some homeowners, ARM terms can mean lower monthly payments compared to fixed-term mortgages. This can be a great opportunity to save money, especially if interest rates are falling and you plan on moving from your home in a few years. 

In a situation like this, an ARM could mean lower interest rates and monthly payments without worry about future increases. 

Refinance costs

Refinancing costs are similar to closing costs and can run between 2% and 5% of your mortgage’s principal amount.

It’s important to discuss your financial situation with your loan officer to help you decide what’s best for your situation.

Next steps: How partnering with Homefinity can help

Mortgage refinancing can be a smart move if it helps shorten the lifetime of your loan, lessen your monthly mortgage payment, help you get your debt under control, or allow you to build equity.

If you’re ready to refinance, you can begin the process by completing a refinance mortgage application

But if you’re not quite ready, are still considering the mortgage refinance signs, or have questions about whether you should refinance now, reach out to the home loan team at Homefinity. 

Our mortgage professionals can answer your questions, help you estimate how much you might be eligible to receive with a cash-out mortgage, or provide the information you need to make the decision that’s right for you and your family.

Photo by Fermin Rodriguez Penelas on Unsplash