Do you think it’s time to refinance your home? If you’re asking, “How can a refinance help me?”, take a look at the following situations where it truly can. It’s generally a good idea if:

  • You can reduce the interest expense on your mortgage

One of the biggest reasons to ask, “How can a refinance help me?” is if you want to reduce the interest costs for your mortgage. If you refinance at a lower rate and also significantly reduce the amount of time needed to pay off your mortgage by doing so, you can save significant money because you’ll lower the final cost of your home.

If you’re struggling to make monthly payments with your current mortgage, a refinance can help you by letting you do two things. Number one, you can qualify for a loan at a lower interest rate, and number two, you can extend the term of your mortgage, thus significantly lowering your monthly payments. When you ask, “How can a refinance help me?”, both of these can be factors that will significantly ease your financial burden in the short term, and they are also a good business decision, since they’ll save you money.

Many homeowners got themselves into trouble with adjustable-rate mortgages during the housing boom. If you’re still struggling to pay an adjustable rate mortgage that’s ballooned in monthly payments, refinancing to a fixed-rate mortgage, such as a 15- year or 30-year mortgage, generally makes very good sense. Because you can lock in a fixed rate, you won’t have to worry about monthly loan payments that jump suddenly anymore. Instead, you can count on making the same mortgage payment every month.

  • You plan to own your home “permanently”

When you ask, “How can a refinance help me?”, make sure you consider how long you’re going to be in your current home. It costs money to refinance (experts state that this is approximately $3500-$4000 for the average $200,000 home, not including costs like taxes or insurance), so you have to make sure it makes financial sense to do so. When you refinance, you are basically paying off your old loan with your new one, and then starting over fresh. Do the math. Figure out what current loan terms and interest rates are for your present mortgage, how long before it’s paid off, and any factors that will affect what you pay for your new mortgage, like your current credit score.

Compare that to how much you would save by refinancing minus closing costs, etc., when you take out the new mortgage. It’s probably worth it, for example, to refinance if it’s going to take you two years to recoup the costs of the refinance through the lower mortgage payments you make, and your plan to be in this home permanently. However, it’s not worth it if you plan to move soon and may not recoup those costs at all.