Life Events

Refinancing means replacing your current mortgage with a new one, usually to lower the rate, change the term, switch loan types or take cash out. It can save real money, but it also carries closing costs, so the decision comes down to the numbers and your plans.

Common reasons to refinance

• Lower the rate and reduce the monthly payment or total interest.
• Shorten the term, such as moving from 30 years to 15, to pay the loan off sooner.
• Switch from adjustable to fixed to gain payment certainty.
• Remove mortgage insurance once you have built enough equity.
• Take cash out for improvements or to consolidate higher-cost debt.

Find the break-even point

Refinancing usually costs a percentage of the loan in fees, such as lender charges, appraisal, title insurance and recording. Divide those costs by your monthly savings to see how many months it takes to recover them. If you expect to move or pay off the loan before then, refinancing may not be worth it.

Watch the fine print

• Restarting a 30-year clock can lower your payment but increase the total interest you pay over time.
• Rolling closing costs into the loan raises your balance.
• Some loans carry prepayment penalties, so check your current note.
• Cash-out refinancing converts home equity into debt secured by your house.

How the process works

1. Check your credit and estimate your home's value and equity.
2. Request loan estimates from several lenders, including your current one.
3. Compare rates, points and total fees on equal terms.
4. Lock your rate and submit documentation such as pay records, tax returns and bank statements.
5. Complete the appraisal, underwriting and closing.

Tax considerations

Points paid on a refinance are generally deducted over the life of the new loan rather than all at once. Interest on cash taken out is deductible only to the extent the money is used to buy, build or improve the home. Keep your closing statement and receipts for any improvements. The Consumer Financial Protection Bureau offers plain-language borrower resources at consumerfinance.gov.

If you are considering a refinance, contact us and we can help you weigh the savings against the tax and cash-flow effects.