Refinancing your mortgage can seem complex, but a refi at the right time could save you a significant amount of interest over the life of your loan.
But when is the right time for you to refinance your mortgage? Understanding the common misconceptions about the refinancing process and finding the answers to frequently asked questions can help you make an informed decision.
In addition, if you're thinking about refinancing, it's important to speak with a trusted lender or housing counselor who can help you fully understand your options and work to get you the best rate possible.
Here are six questions to consider before moving forward with a refinance.
When is the right time to refinance my current mortgage?
Securing a lower interest rate is a good reason to refinance, but it is only one part of the overall picture. For example, if it’s going to take three years to recoup the costs of refinancing and you plan on moving in two years, it would not make financial sense to refinance.
You'll also want to consider the term of the loan, because refinancing to a loan with a shorter term will allow you to build equity faster. For example, if you have 20 years left on your 30-year fixed-rate mortgage and you refinance into a 30-year fixed-rate mortgage, you've essentially extended the term of your loan by 10 years and will pay more interest over the life of the loan as a result.
To understand if refinancing makes financial sense for you, take the total cost associated with the refinance and divide it by your monthly savings.
Can I refinance for free?
When you refinance your mortgage, you are essentially applying for a new home loan and should be prepared to cover closing costs. The costs are typically about the same as what you paid when you closed on your original loan and will depend on where you live and your loan amount.
If you're unsure about your ability to cover the costs of refinancing, ask your lender if they can work with you to cover some of the fees. Your lender may offer a no-closing-cost refinance option, which rolls your closing costs into the total loan balance. This could result in a slight increase in your monthly mortgage payments.
Speak with your lender for a fuller understanding of all upfront costs. A housing counselor can also help you understand different options for how to pay closing fees. Many state and local housing commissions offer closing cost assistance programs. You may even be eligible for a grant to cover your refinancing expenses.
To estimate how much refinancing your mortgage could cost you, use Freddie Mac's refinancing costs calculator.
Do I have to refinance with my current lender?
You can refinance your mortgage through your existing lender or with a new lender.
Can I refinance if I don't have 20% equity?
Yes. If you have less than 20% equity in your home, you may qualify for a refinance depending on your credit score. Your lender will require you to pay private mortgage insurance (PMI), and those premiums will be rolled into your new monthly mortgage payments.
Can I refinance without a credit check?
When you apply for a refinance, lenders are required to check your credit score and credit history to assess your record of paying bills and other debts on time. However, your credit is only one of the "four C's" criteria lenders use when deciding your loan legibility.
Can I refinance my mortgage more than once?
There's no limit to how many times you can refinance your mortgage. If you have a conventional mortgage, you may be able to refinance immediately after closing your previous refinance.
It's important to remember that refinancing isn't free — and your credit score may be impacted if there are multiple credit inquiries. If you're considering refinancing into a lower rate, make sure the potential savings are worth the cost of refinancing.
For more information about refinancing, visit My Home by Freddie Mac®.