When you refinance any type of loan, a mortgage included, you swap an existing loan for a new one. The goal of refinancing is to snag a lower rate on your loan than you’re currently paying.
For example, imagine you already have a 30-year fixed mortgage with a 4.25% interest rate on it. If you’re able to refinance to a new 30-year mortgage with a 3.12% interest rate, you’ll lower your monthly payments.
But not all refinances result in lower monthly payments. In fact, if you swap a 30-year mortgage for a 15-year loan, your monthly payments will likely go up, even if the rate on your new loan is much lower. In this case, you’ll save money in interest over the life of your loan. And, you’ll get to pay it off sooner. As such, refinancing could make sense even if it doesn’t actually result in you paying less money month over month.
Should you refinance your mortgage right now?
Whether or not it pays to refinance your mortgage today boils down to two factors: