Let’s answer some of the common questions you might have about refinancing.

Question #1: Why should I refinance?

Refinancing could help you achieve one or more of the following financial goals:

1. Lower monthly payments: When market conditions change (i.e. interest rate, credit score, etc.), you could lower your monthly payment.

2. Save money on interest: Refinancing with a lower interest rate could help save you money on the total cost of your mortgage.

3. Move out of ARM: You could remove the uncertainty of Adjustable-Rate Mortgage (ARM) by refinancing to a Fixed Rate Mortgage (FRM).

4. Payoff mortgage faster: You could reduce the overall loan interest paid by reducing the period of the loan (i.e. from 30 years to 15 years).

5. Get rid of Private Mortgage Insurance (PMI): This typically applies if you had paid less than 20% down payment on your mortgage

Question #2: When should I NOT refinance?

If one or more of the following applies, you may not be a great candidate for refinancing. We’ll need a detailed analysis to confirm the specifics, but generally speaking:

1. You just purchased your house: Even if the conditions become more favorable soon after your purchase, you may not be able to take advantage of the new situation without re-incurring all the associated costs (closing costs for example) and labor. We’ll need to look into this more closely.

2. Refinancing cost is high: You may have to pay closing costs to refinance, typically 3–6% of the new loan amount.

3. You don’t plan to own the house for long: Depending on the closing costs and your monthly savings from refinancing, you may not be able to recoup your closing costs if you sell too soon after refinancing.

Every situation is different — we suggest consulting with a financial advisor on a detailed analysis of your situation or reach out to us for more general help.

Question #3: Can I save money by refinancing?

Generally speaking, refinancing makes sense if the savings are greater than the cost. Here are some of the ways you can save money over your current mortgage:

1. If you are paying more than about 0.75–1% over the current interest rate, then there is a good chance that you will save money by refinancing. (Don’t forget — there are also other factors unique to your financial situation and personal goals.)

2. If you go for a lower loan period (i.e. 15 years mortgage instead of the current 30 years mortgage), you will save money on the total interest paid across the life of the loan. (Remember — you may have to pay higher monthly payments if you reduce the loan period.)

3. If you are currently paying Private Mortgage Insurance (PMI), it is possible to save this amount if the assessment of your property increases and the new loan amount is less than 80% of the assessed value.

Our calculator can help you check easily whether your potential savings are greater than your refinance costs!

Question #4: What is the Return on Investment (ROI) on refinancing?

Since there are costs involved in refinancing your mortgage, you need to make sure that there is a good return on your investment (cost of refinancing) and the time spent on the process.

Return on investment is a measure which indicates whether the savings you get from refinancing is more than the cost of refinancing.

Question #5: Can I become mortgage free earlier by refinancing?

Wouldn’t it be nice to fully own a house with a sense of security and achievement? Reducing the mortgage period can help you achieve this goal sooner.

For example, reducing a 30-year loan to a 15-year loan can help you pay less interest and become free of the loan sooner. This could increase your monthly payments, so it is important to make an informed decision based on your financial situation and your goals.

Alternatively, you can become mortgage free sooner by paying more against the principal when you make your monthly payments. You could use the money you received as a bonus to pay down the principal as a one-time activity or regularly add additional payments for your principal with your regular payments.

Refinancing is not the only way to pay off your loan faster, but it can be a useful way.

Question #6: Can I reduce my monthly payment by refinancing?

If you refinance a mortgage for the same period or more (i.e. from 15-year to 30-year), your monthly payment will decrease since you are paying it back over a longer period of time. While you will be paying less every month, your total interest paid across the life of the mortgage will be more.

You can also lower your monthly payment if you find a lender who can give you a better interest rate than what you are currently paying. Using our calculator, you can easily see what rates would help you save on monthly payments.

Question #7: Does refinancing make sense if I am planning to move in a few years?

The most important thing to consider is whether you can can recover the cost of refinancing before you sell. Generally, closing costs typically run 3–6% of the total mortgage amount.

You’ll have to calculate the breakeven point (the point at which you will make up the cost of refinancing) to see if it makes sense. If you plan on selling before the breakeven point, it doesn’t make sense to refinance as you would incur more costs than savings.

To calculate the breakeven point, divide the closing costs by your monthly savings to see how many months it will take for you to make up the costs.

Breakeven Point (# of months) = Closing Costs ÷ Monthly Savings

Question #8: Can refinancing remove my PMI?

Did you know that Private Mortgage Insurance (PMI) is for the lenders and not for you? So it is in your best interest to get rid of it and use the money to pay down your mortgage.

You can get rid of the PMI if:

1. Your house has appreciated in value, and the mortgage balance is now 80% of your home’s appreciated value or lower.

2. You pay down the existing loan so that the new mortgage balance is less than 80% of the value of the mortgage.

Question #9: Does my credit score impact my decision to refinance?

Yes. If your credit score has increased significantly, you are likely to be eligible for a much better interest rate leading to savings in the amount of interest you need to pay.

Question #10: Does the age of my loan impact my decision to refinance?

Yes. If you are more than halfway through your loan period, then refinancing may not be the right approach for you.

You are paying bulk of the interest in the front end of the loan. The latter part of the loan is mainly for repaying the principal. So refinancing at this stage merely means that you will be reset and start paying the front-loaded interest.

We recommend checking the calculations to see if other conditions like lower interest rate still create some benefits for your situation.