When Does Refinancing Your Home Make Sense?
Posted: July 15, 2025
Updated: July 15, 2025
If you’ve lived in your home for a while, you may start to wonder if refinancing your mortgage makes sense. There are several scenarios in which refinancing your mortgage might make sense for you. You might be able to lower your monthly rate, reduce your term or get cash out to free up funds. Keep in mind, a mortgage refinance might not be right for everyone. We’ll walk you through how refinancing works and when it can help you meet your financial goals.
What Is a Mortgage Refinance?
A mortgage refinance is when you replace your current mortgage with a new one. You’ll use the refinanced loan to pay off the previous mortgage.
When Does It Make Sense to Refinance?
Refinancing can be done for a variety of reasons. Here are some scenarios where it may make sense for you.
- Lower your interest rate: If you bought your home when mortgage rates were high and they have gone down, you can refinance to a lower rate. If interest rates have dropped significantly, it's worth exploring. This could help reduce your monthly payments and the total amount of interest you pay. You can visit lenders’ websites to check current rates.
- Also, if you've improved your credit score after the purchase of your home, you may qualify for a better rate.
- Get a shorter loan term: Want to pay off your mortgage faster? You can refinance to reduce your loan term. For example, you could refinance a 30-year home loan into a 15-year home loan. Even though that might slightly increase your monthly payments, you could save a significant amount in interest over the life of the loan.
- Consolidate debt: If you have significant equity in your property, you can combine multiple loans into a Cash Out Refinance. This could be a first and second mortgage, credit card, student loan debt and more. Get a handle on your debt by consolidating it. Plus, you might be able to decrease the interest you’re paying with a better loan rate.
- Use your equity: You can take cash out of your home’s equity to free up funds. You might need money to make home renovations, pay education costs or other major expenses. Depending on your circumstances, it might be the most affordable option to borrow money.
- Change your loan structure: If you purchased your home through an Adjustable Rate Mortgage (ARM), you might want to refi into a fixed rate. An ARM provides a low rate for an introductory period, such as 3, 5 or 7 years. After that, the rate will fluctuate based on the market. If you prefer to have the stability of locking in a consistent rate, it might make sense to refinance into a fixed rate mortgage.
- Remove Private Mortgage Insurance (PMI): Private Mortgage Insurance or PMI is often required when borrowers put less than 20% down on their mortgage. It can tack on extra cost to your monthly payments. One way to eliminate PMI is to refinance your loan. Keep in mind, you’ll need at least 20% equity in your home to do this.
- Remove or release a co-borrower: If you have a co-borrower on your mortgage, such as a former spouse or partner, the loan can be refinanced to remove you or the co-borrower from the loan. This can be helpful when one borrower wants to take full responsibility or step away from the loan entirely.
How Does a Mortgage Refinance Impact Your Credit Score?
Refinancing your mortgage can temporarily lower your credit score. When you apply for a new loan, lenders will typically do a hard inquiry on your credit report. This can ding your score slightly.
Also, closing one loan and opening another will decrease the average age of your credit. This can change your credit history and negatively impact your score for a bit.
However, having a good payment history will help mitigate these effects. When you’re in the refinance process, be sure to keep making monthly payments on your current loan. Overall, refinancing your mortgage typically has only a short-term impact on your credit score.
What Are the Costs Involved With a Refinance?
Similar to when you first purchased your home, you will have to pay closing costs with your new mortgage. Closing costs encompass all the taxes and fees related to finalizing a mortgage.
How Much Can You Save by Refinancing?
Use our Mortgage Refinance Calculator to estimate how much you could save by refinancing your mortgage. Enter information about your home’s value, current mortgage and your potential new mortgage. Determine how it will impact the amount of interest you’ll pay and what your new monthly payments would be.
What is Your Break-even Point?
If your refinancing goal is to save money on interest, you’ll want to assess your break-even point. In other words, how long will it take you to recover refinancing costs and start benefiting from lower payments?
- First, estimate your closing costs.
- Second, calculate how much you’ll save each month.
- Finally, divide the closing costs by your monthly savings.
For example, if your closing costs are $2,000 and you’ll save $200 per month with your new rate, it will take 10 months to break even.
Explore Refinancing Options
If you love your home but not your mortgage, it might be time to refinance. At Landmark we offer a range of loan options to meet your financial needs including:
- Fixed Rate Mortgages: This is good choice if you want to lock in a consistent rate.
- Adjustable Rate Mortgages: This is a good choice when you want a lower rate and plan on selling in less than 7 years.
- Cash Out Mortgages (Fixed and Adjustable Rate): This is a good choice when you want to free up funds.
- Mortgage Refi Express: This is a good choice when you want a low rate and to pay off your loan quickly (8, 10 or 12 years). Plus, at Landmark, there is no penalty for paying off your mortgage early!
And the good news is there is no penalty for paying off your mortgage early at Landmark. Learn more about our refinancing options and check out current mortgage rates. Talk to a helpful loan officer who can find the best loan for you.