To Refi or Not to Refi? That Is the Question
- ICE Mortgage Technology
- May 27, 2020
- 2 min read
Updated: Nov 12
There are many reasons you might choose to refinance your home mortgage. Understanding how refinancing works and the common types of refinancing available can help you make an informed decision.
The following scenarios are for example purposes only. Contact your lender for a personalized discussion around your refinancing options.
Tap into home equity to get access to cash.
Replace your mortgage with a new loan in which you borrow more than you owe.
You get to pocket the difference in cash (minus closing costs).
Refinance to save money by changing your loan's terms.
Shorter term — Go from a 30-year loan to a 15-year loan:
Pay less interest over time, save thousands.
Longer term — Go from a 15-year loan to a 30-year loan:
Monthly mortgage payment can drop by hundreds.
Eliminate private mortgage insurance (PMI) if you have 20% equity.
Roll a piggyback loan into your first loan (they often have higher rates).
Switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan or vice-versa:
ARMs are suitable for people who plan to only stay in their homes a few years, need liquid cash each month, or who expect a boost to their income in the near future
Questions to help you decide:
Will you see meaningful savings?
For example, a lower monthly payment or a shorter loan term that reduces the total interest you'll pay.
Is your ARM about to reset?
If so, switching to a fixed-rate loan could offer more stability.
Can you eliminate PMI?
Refinancing might help you drop this extra cost.
Will you stay in your home long enough to reach the break-even point?
That’s the moment when your savings outweigh the upfront costs. If you’re planning to move soon, refinancing may not make financial sense.
Add up all the loan fees.
Determine your monthly savings with the new lower payment.
Divide costs by savings to get the number of months until you break even (you start saving more than you spent).
