Home Ownership: Should I Refinance?
Refinancing happens when you pay off your current mortgage with money from a new mortgage.
- Usually homeowners refinance to try to lower their monthly mortgage payment.
- For example, you might be able to get a new mortgage with a lower interest rate when interest rates fall.
- Refinancing may remind you of what you went through when you got your current mortgage.
- You go through the same process and pay many of same costs when you refinance.
It might not make sense to refinance your mortgage. Ask these questions:
Does your mortgage have a prepayment penalty?
- Check your monthly statement to see if your mortgage has a prepayment penalty.
- If so, you have to pay the penalty if you refinance your mortgage.
- Sometimes, you can avoid the penalty by refinancing with the lender you have now.
Are you planning to move soon?
- If you know you’re going to move in the next few years, you might not have time to recoup the cost of refinancing.
Has the value of your home fallen?
- If the market value of your home is lower now than when you took your original mortgage, you might not be able to get a big enough loan now.
- You might still be able to refinance through the federal government’s Home Affordable Refinance Program (HARP) or the FHA Short Refinance Program.
- Call the CFPB at (855) 411-CFPB (2372) to speak to a representative who can connect you to a U.S. Department of Housing and Urban Development (HUD)-approved housing counselor, or find one at makinghomeaffordable.gov.
Do you have a home equity loan or line of credit?
- Your home equity lender may have to approve your refinance.
- If it refuses, you may have to pay off your equity line first before you refinance.