Should I refinance my home loan?

Every day at 1st Financial, we talk to people who are considering refinancing their homes but aren’t always sure if they should do it.

We hear about refinancing all the time on TV, social media and advertisements – lower your rate, lower your payment, get cash from the equity in your home, pay off your mortgage faster! Those are all good things – but is it right for you?

That answer really depends on your specific situation. Make sure you think about your goals and what you hope to achieve with the refinance.

Here are some questions to ask yourself:

  • How long do I plan to stay in my home?
  • When would I like to have my home paid off?
  • What has changed since I purchased my home or refinanced last? (Think changes in income, credit score, home value, retirement, etc.)
  • Do I have equity in my home right now? How much is the home worth today compared to what is owed on the current mortgage?
  • What type of loan do I have now? (FHA/Conventional/VA, Current Rate, Current Term, Mortgage Insurance, etc.) Would I benefit from a different loan type?
  • What options do I have for a refinance?

This one is self-explanatory. A lower interest rate will allow more of your monthly payment to go towards the principal balance of your loan. If your only goal with the refinance is to lower your interest rate (and keep the same term) a good rule of thumb is to lower by about .5% to 1% to see a real benefit.

This is very similar to lowering your rate. If the term of your loan (aka length of your loan) stays the same and your interest rate goes down, you will see a decrease in payment.

Some people will opt to lengthen a term to lower a payment. For example, if you are 10 years into a 30-year loan, but your circumstances change and you are struggling to make your payment, it may make sense to refinance back into a new 30-year loan. In this case you will be making payments for longer, but in some situations, it may be the best option available.

Shortening the term of your loan can be the best long-term money-saving option for a lot of borrowers. You will potentially save tens of thousands of dollars in interest, over the term of your loan in a 15-year term vs. a 30-year term. You can expect a higher payment with a 15-year term, but it will not be double since there is less interest charged.

Refinancing into the shortest term you can afford monthly is the best way to save money on interest and will allow you to be debt free sooner. Think about what you want to do in the future and when you want to be done paying a mortgage. Typically, lenders offer lower interest rates with shorter term mortgages.

There are a lot of reasons to take advantage of the equity in your home.  The funds that you borrow against your home equity can be used to pay off your existing mortgage, plus have extra money for:

  • savings
  • home improvement projects
  • debt consolidation
  • Or whatever else you need

Some borrowers will use these funds to pay for large purchases like home improvements or additions, weddings, college, vehicle purchases, vacations, etc. A mortgage usually carries a lower interest rate than a credit card or other type of loan. Mortgage interest paid is often tax deductible, compared to other loans which are not. If you have large purchases coming up or credit card balances that are not going down over time, it’s worth considering a refinance.

Find this information useful?
Check out some of our other recent blog posts:


Want to see if refinancing your home may be a good option for you? Reach out to us at 1st Financial Federal Credit Union.

Until the next time,


Katie T.

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