Article | 2:44 min read

Deciding when it's Time to Refinance a Home


A couple talking to a home loan officer

Interest rates have increased slightly, but they remain historically low. With interest rates so low, many homeowners may be tempted to refinance their home loans - especially if it seems that rates are only going up from here. It's important to ensure homeowners decide to refinance for the right reasons. Not doing so can cost more money and hassle in the end, according to Bankrate [1].

Reasons to refinance

While it is important homeowners exercise caution when deciding to refinance, there are some reasons that make more sense than others.

The most common reasons to refinance are to score a lower interest rate, to cash in on built-up equity, switch from an adjustable-rate mortgage to an FRM, and because of a divorce. If a homeowner's situation is one of these common reasons, he or she might want to consider a few things to ensure this is the best decision.

Figure out the finances

It's important for homeowners to contact the financial institution they received the loan from to discuss the fees and extra costs that accompany refinancing. The average closing cost for a $200,000 mortgage was $3,754, according to Bankrate's closing cost survey. It's important to consider whether the expenses are ultimately worth the lower interest rate.

The help of a professional is invaluable when figuring out the costs associated with refinancing.

"You have to look at the savings relative to the cost, and then consider: How long am I going to be in this property?" said Charles Delaney, an associate professor of finance at the Hankramer School of Business at Baylor University.

In some instances, refinancing a home mortgage will be well worth the closing costs. It can lower the total monthly payment and give the owner more time to pay off the loan. While this may mean a greater cost when looking at it holistically, but the more manageable monthly payments can help a great deal.

Tips for refinancing

Homeowners who decide refinancing is the most logical step need to ensure they secure the best rate. The process to best do this is similar to applying for an entirely new home loan.

The credit score is weighed heavily when lenders begin determining a refinancing option. Homeowners should work to improve their credit score prior to applying to refinance.

People can substantially raise their credit score in as few as 30 to 45 days, so acting quickly is important. Paying bills on time and in full will help improve credit reports.

"Pay down debt so your debt-to-credit-available ratio is less than 20 percent, which will help push up your score," Ilyce Glink, a personal finance author told Bankrate.

In addition, individuals should not apply for other loans or open new lines of credit while in the process of considering a refinancing. This especially true of the credit cards offered at stores that boast a discount upon registration.

"If you've picked up new credit cards, you've just sabotaged your credit score," said Carolyn Warren, a mortgage industry professional and author, according to Bankrate. "It's not worth saving 10 bucks."

Those considering refinancing should head to the bank and request further guidance for the refinancing process. A homeowner's confidence in their decision is of paramount importance.


[1]. How to figure out when it makes sense to refinance your mortgage


The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its subsidiaries and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.