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Back to Refinancing

Why Refinance?

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A suburban home.

Refinancing is the process of paying off an existing loan with the proceeds from a new loan, and using the same property as collateral. Usually, the interest rate on the new mortgage will be less than the old, the loan will cost less and you will save money. However, refinancing isn’t appropriate for every homeowner. To know if it’s right for you, understand how these arrangements work.

Benefits of Refinancing:

  • Reduced Interest Rate — A lower interest rate will decrease your monthly mortgage payment, freeing up cash for other expenses. Every percentage point makes a difference.
  • Repay Your Mortgage Faster — Refinancing your mortgage at a shorter term will help you pay off your loan faster. Your monthly mortgage payment may be higher, but you’d pay much less in interest over the life of the loan while building equity more quickly.
  • Cash Out Refinancing — With a cash out refinance, you’d refinance your current mortgage plus take some cash from the equity you’ve built. Interest rates on the cashed-out portion are often lower than a home equity loan or line of credit or a second mortgage. You can then use this cash to help with home repairs, renovations, or debt consolidation.

Before deciding to refinance your mortgage, you should consider:

  • The interest rate of the existing mortgage
  • The interest rate of the new mortgage
  • The cost of refinancing
  • How long you plan to stay in your home
  • How much equity you have built up in your home
  • Your current income and credit status

So is it time to refinance your mortgage? If you will come out ahead financially, then it is definitely worth considering. However, if the difference is minimal or nil, then save yourself the time and trouble. Other factors also ultimately affect your decision, such as how long you plan to live in the home. Refinancing is not the magic answer for everyone.

Refinancing your mortgage could mean more money in your pocket, whether you want to lower monthly payments or get cash to consolidate your loans.

  • Related Resources

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  • Should I refinance?

    When you refinance at a lower interest rate, you usually pay refinancing costs including points, fees, and closing costs. This calculator will tell you if the amount you save in interest will exceed these refinancing costs.
  • Refinancing Costs

    It’s important to understand the costs and fees you’ll have to pay for refinancing and how long it will take you to recover those costs.
  • Refinancing Checklist

    Here’s a list of information you may be asked to provide when you submit your refinance application.