How to Refinance Your Mortgage for the Right Reasons

Homeowners often reflexively consider refinancing when interest rates drop, hoping for lower payments.

However, refinancing solely for a lower rate may not actually save you money in the long run. Here are some guidance on strategic reasons to refinance beyond interest rates alone.  


Shorten Your Loan Term

Refinancing into a shorter loan term, e.g. from 30 to 20 or 15 years, can save tens of thousands in interest charges over the life of the loan, even if rates increase slightly. The higher payments are often manageable, especially if you've been in your home for a few years.

This approach also builds equity faster, for more financial security.  


Eliminate Mortgage Insurance

If your home value has appreciated enough, a refinance could allow you to cancel private mortgage insurance or PMI. This can save hundreds per month, which may offset a higher rate.

Work with your lender to determine your home's current value and if you have enough equity to eliminate PMI.   


Tap Your Home's Equity

For homeowners with considerable equity, a "cash-out" refinance can provide access to funds for other financial priorities like:

• home improvements
• college tuition
• debt consolidation

While rates may be higher, the opportunity to leverage your equity for important needs may outweigh costs. Proceed cautiously and only borrow what you can afford to repay.


Refinancing makes the most sense when you have a strategic reason beyond lower interest rates alone. Evaluate your priorities and work with your lender to determine if refinancing now suits your needs, even if rates are not at rock-bottom levels.

The savings in interest, time, and financial security can still make refinancing the right move.