Key takeaway
Refinancing your mortgage may have several potential benefits: It could reduce your monthly principal and interest payment or it could help you pay off your mortgage faster. You’ll want to review any costs associated with the refinancing, as well as the new interest rate of your loan, to determine if a refinance might make sense.
- More topics in Being a Homeowner
- Learning Center overview
Depending on when you purchase your home, you may notice that interest rates go up or go down in the months or years after you secure your mortgage. Additionally, you may find that your credit score changes — perhaps it goes up based on smart financial decisions you’ve made around your debt.
If rates are lower, or you think your credit rating may qualify you for a better interest rate than you received when you first got your mortgage, you may consider refinancing. A refinance is essentially getting a new mortgage to replace the one you currently have. Read on for information on when refinancing your mortgage may benefit you.
Why refinancing your loan could make sense
1. To get a lower interest rate
When you’re making mortgage payments, you’re paying against the principal and the interest your lender charges on the loan. The lower your interest rate is, the less you’ll pay in interest over time. This can mean you pay more of the principal loan amount each month to pay off your mortgage more quickly, or that you free up more of your monthly budget for other day-to-day expenses or for saving for future goals.
Taking advantage of a lower interest rate is the #1 reason homeowners refinance their mortgage, according to the U.S. Census Bureau.
2. To reduce the time frame of your mortgage
You may be able to refinance to reduce the amount of time it will take to pay off your mortgage. For example, if you had 22 years left on your initial loan, you may be able to refinance by choosing a 15-year or 20-year mortgage. It’s important to review the impact this may have on your monthly principal and interest payment, however. Shortening the length of your mortgage may make your monthly payment higher, depending on the interest rate and other factors.
3. To switch from an adjustable rate to a fixed rate
If you have an adjustable-rate mortgage (ARM), the interest rate can go up or down over time based on market conditions. If you have an ARM and you expect interest rates to go up, you may consider refinancing to lock in a fixed rate, especially if rates are low.
4. To eliminate mortgage insurance
If you made a down payment of less than 20% of the purchase price initially, or your loan required private mortgage insurance for another reason, certain steps may help you eliminate your PMI.
If you can show that your home has increased in value, or you have paid down your loan balance enough, you may be able to request that your lender remove the PMI from your loan. Typically, you will need to have 20% equity (the difference between the market value of your home and what you owe on your mortgage) in your home. Depending on what type of property your home is, lenders may be required to end your PMI obligation after a certain amount of time. Other factors to remove PMI include having a good payment history, the currency of the loan, and depending upon the investor, an automated valuation model (AVM).
Ways to potentially pay down your mortgage faster
This strategy may help reduce the amount of interest you pay over time. But it’s important to consider your full financial picture.
View article
Preparing for life’s “what ifs” as a homeowner
If you have financial challenges after you become a homeowner, your mortgage lender may be able to find options that can help you.
View article
Still have questions?
Quick Help
- Finish a saved application
- Check application status
- Sign on to manage your account
- Home mortgage FAQs
- Customer help and payment options
Call Us
New Loans
1-877-510-2079
Mon – Fri: 7 am – 8 pm
Sat: 8 am – 6 pm
Central Time
Existing Loans
1-800-357-6675
Mon – Fri: 7 am – 10 pm
Sat: 8 am – 2 pm
Central Time
Let Us Contact You
Have a home mortgage consultant call you back.
If you extend your loan term, you may pay more interest over the life of your loan.
If you are a service member on active duty, an eligible spouse, partner, or dependent, or currently receiving SCRA benefits, please consult with your legal advisor prior to seeking a refinance of your existing mortgage loan. In some cases, a refinance may impact your eligibility for benefits under the Servicemembers Civil Relief Act or applicable state law.
Equal Housing Lender
Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A.
QSR-07052025-6200360.1.1
LRC-1223
FAQs
Reasons to Refinance
What are the benefits of refinancing your mortgage? ›
Depending on what kind of loan you are eligible for, refinancing might offer you one or more benefits, including: a lower interest rate (APR) a lower monthly payment. a shorter payoff term.
What's the downside to refinancing? ›
Refinancing allows you to lengthen your loan term if you're having trouble making your payments. The downsides are that you'll be paying off your mortgage longer and you'll pay more in interest over time. However, a longer loan term can make your monthly payments more affordable and free up extra cash.
What is the main reason people refinance a home mortgage? ›
One of the best and most common reasons to refinance is to lower your loan's interest rate.
Is refinancing your house a good idea? ›
Is refinancing worth it? If it frees up money in your monthly budget, reduces the overall cost of the loan or helps you achieve some other financial goal, refinancing can be well worth the work and money. “It's important to determine your break-even point,” says Linda Bell, senior writer for Bankrate.
What is the downfall of refinancing a home? ›
Your Monthly Payment Could Increase
If you refinance from a 30-year mortgage to a 15-year mortgage, your payment will likely increase because you are shortening the amount of time you have to pay off your loan.
Does refinancing hurt credit? ›
If your original mortgage is your longest-held account, closing it in favor of a fresh loan may negatively impact your credit scores, at least initially. Over time, as your other credit accounts age, the impact of a refinance on your credit scores will generally lessen.
What is not a good reason to refinance? ›
Key Takeaways. Don't refinance if you have a long break-even period—the number of months to reach the point when you start saving. Refinancing to lower your monthly payment is great unless you're spending more money in the long-run.
What do you lose when you refinance? ›
You don't have to lose any equity when you refinance, but there's a chance that it could happen. For example, if you take cash out of your home when you refinance your mortgage or use your equity to pay closing costs, your total home equity will decline by the amount of money you borrow.
What should you not do when refinancing? ›
Rushing in to the decision to refinance may not benefit your financial situation, so take time to avoid these eight mistakes.
- Failing to do your homework. ...
- Assuming you're getting the best deal. ...
- Failing to factor in all costs. ...
- Ignoring your credit score. ...
- Neglecting to determine your refinance breakeven point.
Your servicer wants to refinance your mortgage for two reasons: 1) to make money; and 2) to avoid you leaving their servicing portfolio for another lender.
At what point does it make sense to refinance? ›
A general rule of thumb is that it makes financial sense to refinance your mortgage if you can secure a rate that's at least 1% lower than the one you currently have. During the pandemic, mortgage interest rates hit historic lows and a rush of homeowners were able to refinance with lower interest rates.
How many times can you refinance a house? ›
Legally, there isn't a limit on how many times you can refinance your home loan. However, mortgage lenders do have a few mortgage refinance requirements you'll need to meet each time you apply for a loan, and some special considerations are important to note if you want a cash-out refinance.
What is the catch to refinancing your home? ›
A longer-term loan could result in lower monthly payments, but higher overall costs. For instance, if you have 10 years left to pay on your current loan and you refinance to a 30-year loan, you could end up paying more in interest overall to borrow the money and have 20 extra years of mortgage payments.
Do you get money back when you refinance your home? ›
A cash-out refinance is a type of mortgage refinance that takes advantage of the equity you've built over time and gives you cash in exchange for taking on a larger mortgage. In other words, with a cash-out refinance, you borrow more than you owe on your mortgage and pocket the difference.
How many years should you live in a house after refinancing? ›
It is possible to sell your house immediately after refinancing – unless your new mortgage contract includes an owner-occupancy clause. It is common for owner-occupancy clauses to require you to stay in your house for six to twelve months before selling or renting it out.
When should you not refinance? ›
Key Takeaways
Don't refinance if you have a long break-even period—the number of months to reach the point when you start saving. Refinancing to lower your monthly payment is great unless you're spending more money in the long-run.
Do you get money back when you refinance your mortgage? ›
With a cash-out refinance, you get a new home loan for more than you currently owe on your house. The difference between that new mortgage amount and the balance on your previous mortgage goes to you at closing in cash, which you can spend on home improvements, debt consolidation or other financial needs.
Do you get money when you refinance your home? ›
A cash-out refinance is a type of mortgage refinance that takes advantage of the equity you've built over time and gives you cash in exchange for taking on a larger mortgage. In other words, with a cash-out refinance, you borrow more than you owe on your mortgage and pocket the difference.
When you refinance a mortgage, does the 30 years start over? ›
Refinancing doesn't reset the repayment term of your loan, but it does replace your current loan with a new loan. You may be able to choose from different offers for your new loan depending on your goals, including a longer or shorter repayment term.
