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3 reasons to refinance

Refinancing your mortgage can be a smart move, but it's not for everyone. Consider rates, options and your plans before deciding.

Keep costs in mind

Refinancing comes with associated costs, and sometimes a lower interest rate can end up costing you more in the long run.

Reasons to consider

Consider the following as you decide whether to refinance your mortgage:

1.  Interest Rates

  • Compare your existing rate with what's being offered today. Then calculate your projected savings from refinancing. As a rule of thumb, if you can lower your annual percentage rate by more than 1%, it's worth thinking about refinancing.
  • The larger the amount you owe, the more you'll save, because interest is a percentage of the total. For example, 1% of $500,000 would create more of a financial impact on you than 1% of $100,000, especially over the course of many years.

2.  Better Mortgage Options

  • Consider which type of mortgage would give you a better deal as compared with your current situation.
  • For example, if you have an adjustable-rate mortgage (ARM) and your interest rate is about to rise, it may be to your advantage to refinance to a fixed-rate mortgage. With a fixed-rate mortgage, your monthly rate is predictable, because even if market interest rates rise, your mortgage remains the same for the life of your loan.

3.  Your Plans

  • The length of your mortgage term depends on your situation. Would you rather pay less in interest and pay the mortgage off more quickly? If so, a 15-year term might be for you. You'll have a higher monthly payment, but you'll pay less overall. With a 30-year mortgage, you'll have a lower monthly payment and more available cash each month, but you'll pay more overall than with a 15-year mortgage.
  • Either way, your long-term financial plans should guide your decision. If refinancing is part of your short-term plan, you'll at least want to keep that mortgage long enough to cover your closing costs.
Keep it up. You're getting smarter about home buying.

Related topics

Will I benefit from refinancing?

Weigh the benefits versus the costs and see if refinancing is right for you.

When should I refinance?

Make sure you're refinancing at the best possible time by asking yourself a few questions.

What is cash-out refinancing?

Learn about the refinancing option that allows you to take the difference between your old and new mortgage in cash.

Benefits of refinancing to a Veterans Administration loan

Veterans Administration (VA) mortgages are among the primary perks of military service, and the benefits don't stop when it's time to refinance.

For comparison purposes, a 30-year fixed rate mortgage of $200,000 with a 20% down payment at an APR of 4.199% with 0.125 discount points and a $895 origination fee with a credit score of 720 would result in 360 equal payments of $969.30. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 15-year fixed rate mortgage of $200,000 with a 20% down payment at an APR of 3.378% with 0.125 discount points and a $895 origination fee with a credit score of 720 would result 180 equal payments of $1,405.34. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 3-year adjustable rate mortgage of $200,000 with a 20% down payment at an APR of 4.101% with 0 discount points and a $895 origination fee with a credit score of 720 would result in 36 equal payments of $926.23 and 324 equal payments of $965.82. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 5-year adjustable rate mortgage of $200,000 with a 20% down payment at an APR of 4.052% with 0 discount points and a $895 origination fee with a credit score of 720 would result in 60 equal payments of $926.23 and 300 equal payments of $963.40. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates&mdash that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 7-year adjustable rate mortgage of $200,000 with a 20% down payment at an APR of 4.020% with 0.125 discount points and a $895 origination fee with a credit score of 720 would result in 84 equal payments of $926.23 and 276 equal payments of $960.90. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

For comparison purposes, a 10-year adjustable rate mortgage of $200,000 with a 20% down payment at an APR of 4.110% with 0 discount points and a $895 origination fee with a credit score of 720 would result in 120 equal payments of $954.83 and 240 equal payments of $965.24. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 10/24/17. Rates and programs may change at any time.

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