Is Now a Good Time to Refinance My Home?

When Should You Refinance Your Home?

Refinancing your home may be worthwhile when it helps lower costs or better align your mortgage with your financial goals.

Here are some situations when it may make sense to refinance your home.

You Can Get a Lower Interest Rate

A lower mortgage interest rate can reduce your monthly payments and the total interest you'll pay. If interest rates have decreased since you got your mortgage, refinancing could help you save money.

You may also qualify to refinance at a lower interest rate if your credit score has improved or if you plan to add a co-borrower who has a good credit score. Be sure to weigh the potential savings against refinancing closing costs to see if you'll come out ahead.

Learn more: Factors That Help Determine Your Mortgage Interest Rate

You Want to Modify Your Loan Term

Refinancing from a 30-year mortgage to a shorter loan term, such as 10, 15 or 20 years, can save on interest and help you pay off your mortgage faster. Shorter loan terms often come with lower interest rates, but your monthly payments are usually higher than with a longer-term loan.

Refinancing into a longer loan term can lower your monthly payments; the tradeoff is that you'll pay more in total interest.

You Want to Change Your Loan Type

You might refinance an adjustable-rate mortgage (ARM) into a fixed-rate loan for the peace of mind of predictable monthly payments. If you have a government-backed mortgage such as an FHA, VA or USDA loan, refinancing into a conventional loan could eliminate the need for mortgage insurance if you have enough equity. A conventional loan can also give you the flexibility of a cash-out refinance down the road.

You Want to Tap Home Equity

Cash-out refinancing replaces your existing mortgage with a new, larger one and gives you some of your home equity in cash. You can use a cash-out refinance to help pay for large expenses, such as remodeling projects or consolidating debt. Just be aware that because it increases your loan balance, a cash-out refi may increase your total borrowing costs.

Learn more: Should You Tap Into Your Home Equity?

You Want to Add or Remove a Borrower

Refinancing can be used to change the co-borrowers on your mortgage. You might want to refinance after getting divorced to remove your ex-spouse from your mortgage loan, for instance. If you marry someone with a solid income and good credit, adding them to your mortgage refinancing application might help you qualify for a lower interest rate.

You Want to Get Rid of PMI

Conventional mortgage loans require private mortgage insurance (PMI) if your down payment is less than 20%. PMI is automatically removed once you have 22% equity in your home, but you can also use a traditional refinance to have PMI removed when you have 20% equity. With Federal Housing Administration (FHA) loans, refinancing may be the only way to remove the mortgage insurance requirement from your loan payments.

Learn more: Types of Mortgage Refinances

Compare mortgage refinance rates

Check today’s refinance offers and current rates to find the right loan to lower payments or shorten your term.

Should I Refinance My Mortgage Now?

Consider these factors to decide if you should refinance your mortgage now.

• Current mortgage rates: Mortgage rates fluctuate constantly based on factors such as inflation, monetary policy and market conditions. A good starting point is to compare your existing interest rate to current average mortgage refinancing rates.
• Your credit score: Higher credit scores typically qualify you for better refinance rates. The best mortgage rates are generally reserved for borrowers with scores in the high 700s or above.
• How long you plan to stay in the home: Refinancing makes more sense if you expect to stay in your home long enough to recoup your closing costs. To calculate this break-even point, divide your closing costs by the amount the refi will save you each month on your mortgage payment. For example, if you're paying $12,000 in closing costs and will save $200 a month on your payment, you'd need to stay in the home for 60 months (five years) to break even.
• Your home equity: You typically need at least 20% equity in your home to qualify for a cash-out refi of a conventional loan. Some refinance programs allow less equity, but may have additional costs such as PMI, that can eat into potential savings.
• Time left on your mortgage: During the early years of your mortgage, most of your payment goes toward interest. Refinancing replaces your current loan with a new one, which starts the amortization schedule over. This means the bulk of your payment may once again go toward interest. If you've already paid down a significant amount of your mortgage, this can slow your progress in building equity. Refinancing into a shorter loan term can shift more of your payments toward principal faster.

Learn more: Pros and Cons of Refinancing Your Home

What Is Required to Refinance a Home?

Criteria for refinancing can vary from one lender to another, but lenders typically consider these factors.

• Credit score: You usually need a credit score of at least 620 to refinance a conventional mortgage and at least 680 to refinance a jumbo loan. Government-backed loans may have minimum credit score requirements as low as 500. Meeting these minimums doesn't guarantee approval, however, and higher credit scores typically help you qualify for lower interest rates.
• Debt-to-income ratio (DTI): Your DTI reflects how much of your pretax monthly income goes to debt payments. Mortgage lenders generally prefer a DTI of 43% or less; some require a DTI of 36% or less.
• Home equity: In most cases, you need at least 20% equity in your home to refinance your mortgage. Lenders generally limit your loan-to-value ratio (LTV) to 80%, meaning your refinanced loan amount generally can't be more than 80% of your home's appraised value.
• Payment history: Lenders want to see a history of timely payments, not just on your current mortgage but on other credit accounts too.
• Income and employment: A solid income and steady employment history can help you qualify for a refi. Conversely, if your income has dropped or you've gone freelance since getting your mortgage, it might be more difficult to get approved for a new mortgage.

Learn more: What Factors Do Mortgage Lenders Consider?

Mortgage calculator

How to Get the Best Refinance Rate

Following these tips can help you get the best refinance rate.

• Boost your credit score. You can check your Experian credit report and FICO^® Score^Θ for free to see where you stand. If necessary, take action to improve your credit by bringing late accounts current, paying bills on time and paying down credit card balances.
• Lower your DTI. An easy way to reduce your DTI is by paying off small loan and credit card balances and avoiding new debt. You can also look for ways to increase your income, such as getting a second job.
• Shop around. Comparing offers from multiple lenders can reveal significant savings. Get at least three or four loan estimates from different lenders and compare interest rates, fees and terms.

Learn more: How Does Refinancing a Mortgage Work?

Frequently Asked Questions

Ready Your Credit to Refinance

Refinancing your mortgage may be a smart move if you can get a lower interest rate and will stay in your home long enough to break even on closing costs. Whatever your reason for refinancing, preparing your credit before you apply can help you qualify for better loan terms. Experian's free credit monitoring is an easy way to keep tabs on your credit as you get ready to apply for a refi. You'll be able to track your FICO^® Score and get alerts of important changes to your credit report.