when does it make sense to refinance?

Refinancing your mortgage may save you in the long run, but make sure you understand the upfront costs

When interest rates drop, you’ll usually hear a lot of buzz about refinancing. Refinancing your mortgage can be a good idea—but it’s not always the right call.

Let’s take a closer look at what to consider when you’re thinking about refinancing, which involves taking out a new loan to pay off your original mortgage.

Reasons you may want to refinance

Many people refinance to take advantage of the following benefits:

• To lower your mortgage payment. With a lower interest rate, you’ll likely lower your monthly payment. That means you’ll free up additional cash you could put toward your retirement account, your kid’s college fund, or another important goal.
• To lower the amount of interest you’ll pay overall. Refinancing may also reduce the total interest, meaning you’ll pay less over the life of your mortgage—and you may be able to pay it off faster.
• To lock in a lower fixed rate. If you have an adjustable rate mortgage, you may want to eliminate the possibility of rising payments and switch to a fixed-rate mortgage.

Factors to keep in mind

While there are some great reasons to refinance, it’s not a one-size-fits-all proposition. Depending on your specific situation, you might be better off sticking with your current mortgage. Here are a few reasons why:

You’ll have to apply and qualify. To qualify for refinancing, you’ll go through a process similar to the one you went through when you applied for your mortgage. A lender will look at the equity you’ve built up so far, your income, and your credit score. If any one of these factors isn’t high enough, it could hurt your chances of qualifying.

Refinancing involves some closing costs.

Even if your ultimate goal is to save money, depending on your financial institution, you may have some closing costs, such as an appraisal fee, a credit report fee, and title insurance. It’ll take some time to break even on those costs. That means if you plan to move before you break even, you may not recoup your costs.  Check with your financial institution to see what types of fees you may incur.

When to consider refinancing

If refinancing would give you a lower interest rate or better terms, you may be able to save money now and over the long term—especially if you plan to stay in your home for several years or more. And that savings could be especially valuable if you use it for other needs and goals.

If you're considering refinancing, use our refinance calculator to get a better idea of how much you can save. 

We can help you weigh your options and make the right choice for you. Connect with a First Financial Bank mortgage loan officer today to discuss your options.