How to Refinance Your Home Loan

Thinking of refinancing or buying a home? Now might be the time to get that loan.

Mortgage interest rates — which had been near historic lows for many years — have been rising in fits and starts, and may climb again.

So, it might pay off to lock in a rate now before home loan costs climb even higher. Here are some steps to follow when shopping for a mortgage.

Keep an eye on interest rates

Even small movements in mortgage rates can make a big difference in your monthly housing costs and in the interest you pay over the lifetime of your loan.

You can play with the numbers on a mortgage calculator like this one. But the point is that the more rates rise, the more it increases your monthly costs unless or until you lock in a rate on a home loan.

Use Money Talks News’ mortgage rates page to find the best home loan rate where you live.

Figure out if refinancing will pay off

Will you come out ahead if you refinance? The devil is in the details.

Refinancing to a lower rate lowers a monthly mortgage payment. But it only makes sense if the month-to-month savings exceed the cost of refinancing. In short, don’t do it unless you’ll stay in the home until you’ve saved more from the lower rate than you paid in refinancing fees.

Use an online refinancing calculator like this one to compute your break-even point. It will help you determine if a refinance makes sense.

A lower monthly mortgage payment is always welcome. Refinancing to a lower interest rate should drop your payment. But you can’t be sure, since the details depend on your loan amount, your credit score and other factors.

Learn whether you can get rid of mortgage insurance

If you bought your home with a down payment smaller than 20 percent of the purchase amount, you probably were required to buy mortgage insurance. Private mortgage insurance (PMI) charged on conventional loans typically can cost 0.5 percent to 1 percent of your loan’s value. You usually can drop PMI on a conventional loan once your equity reaches 20 percent.

Federal Housing Administration (FHA) mortgages include mortgage insurance, too. With FHA mortgages, you have to pay mortgage insurance for the life of the loan — refinancing is the only way out.

However, if you have 20 percent equity in your home when you refinance — whether through your payments or from appreciation of your home’s value — you won’t need mortgage insurance.

Decide if you want to extract cash

Home values have been rising in most parts of the country. That means you may have more home equity. One way to tap it without selling your home is to refinance and take out cash.

Consider a short-term adjustable mortgage

Thirty-year fixed-rate mortgages are a safe, traditionally popular choice. But an adjustable-rate mortgage (ARM) may meet your needs under certain circumstances — such as if you plan to sell your home before the loan’s introductory low-interest-rate period ends.

ARMs are attractive because their initial interest rates typically are lower than those of fixed-rate loans. But they are riskier: After a fixed-rate period, the interest rate can change regularly. The 5/1 ARM, for example, has a fixed rate for five years. After that, the interest rate can fluctuate each year — possibly higher, possibly lower.

Some ARMs adjust more often — twice a year or even every month. If the rate goes up, your mortgage could suddenly become a lot more expensive.

Have you refinanced your home or otherwise borrowed for a mortgage? Tell us about your experience at our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

These Are the 10 Worst Cars for Depreciation
These Are the 10 Worst Cars for Depreciation

Two types of vehicles are especially likely to see steep plunges in value.

14 Things That Are ‘Free’ With Medicare
14 Things That Are ‘Free’ With Medicare

These services could save you money and help prevent costly health problems.

America’s Most Reliable Appliance Brand Is a Surprise
America’s Most Reliable Appliance Brand Is a Surprise

Have you heard of this appliance manufacturer?

Never Buy These 12 Things at a Thrift Store
Never Buy These 12 Things at a Thrift Store

Sometimes a great deal is not worth it — or, even worse, is dangerous.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

10 Cars You Are Most Likely to Keep for 15 Years
10 Cars You Are Most Likely to Keep for 15 Years

The cars that owners hold onto the longest have one thing in common, a new study shows.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

Taking a Multivitamin? Here’s Why You Should Reconsider
Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

9 Things You Should Never Leave in a Car
9 Things You Should Never Leave in a Car

Thinking of leaving these possessions in a car? Prepare for unexpected consequences.

Prepare to Pay More for These 31 Drugs in 2021
Prepare to Pay More for These 31 Drugs in 2021

More than 700 prescription medications have seen price hikes so far this year. Here’s a look at the worst.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

5 States Lowering Taxes This Year and 2 Raising Them
5 States Lowering Taxes This Year and 2 Raising Them

State personal income tax rates, brackets and deductions just changed in these places.

7 Tricks to Cleaning Your Bathroom Faster
7 Tricks to Cleaning Your Bathroom Faster

These tips can get your bathroom sparkling with little time and no elbow grease.

20 Amazon Purchases We Loved in 2020
20 Amazon Purchases We Loved in 2020

These practical products made everyday life a little easier last year — and will do so in the new year, too.

10 Times You’re Right to Be a Cheapskate
10 Times You’re Right to Be a Cheapskate

Clever shoppers can save money without sacrificing quality. Here is how to do it.

Homeowners Say These 2 Kitchen Appliance Brands Are Best
Homeowners Say These 2 Kitchen Appliance Brands Are Best

One brand takes five of the top honors, while another ranks highest in three categories.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.