Is now a good time to refinance?

Refinancing a mortgage simply means replacing your current home loan with a new one that has more favorable terms. It’s a chance to hit reset on your mortgage by adjusting your interest rate, monthly payment or loan structure to meet your current financial situation or long-term goals. But knowing when to refinance is a key part of making the best decision for your situation. 

How refinancing works 

Refinancing isn’t just an adjustment of your current loan. It involves applying for a brand new loan that pays off your existing mortgage. The new loan could come with a lower interest rate, a different term length or even a new loan type altogether. Just like your original mortgage, you’ll need to go through an application, a credit check and pay various refinance closing costs, so you’ll want to weigh the potential savings against the upfront expenses to make sure refinancing is the right financial decision for you. 

Why homeowners consider it

Homeowners choose to refinance for all kinds of reasons depending on their financial goals and circumstances. Some are looking to lower their interest rate or reduce monthly payments, while others aim to switch from an adjustable-rate to a fixed-rate mortgage. Refinancing can also be a way to tap into home equity through a HELOC or home equity loan. But it all starts with answering the main question: when can you refinance a mortgage?

Just like putting an offer on a home, there is a lot to consider when asking yourself, should I refinance my mortgage? So, before you jump in, it’s worth taking a closer look at the key factors that could influence your decision. 

Current refinance rates 

Current refinance rates are usually the first factor homeowners consider when thinking about refinancing, and for good reason. They fluctuate daily with market conditions, and even a small dip—such as a quarter percent—can result in major savings over time. But the rate you see advertised may not be the one you qualify for. Your actual rate will depend on your credit score, income and how much equity you’ve accumulated in your home. 

How long you plan to stay in the home 

Refinancing is typically more of a long-term strategy than a short-term play. Since it usually comes with closing costs, you’ll want to stay in the home long enough to hit your break-even point for refinancing—the point at which your savings surpass what you spent on the refi. If you plan to move in a year or two, it might not be the right call. But if you’re in it for the long haul, those savings can add up over time. 

Credit score and current loan terms

Your credit score is more than just a number; it influences the kind of refinance deal you can land. If your credit score has recently improved, it could unlock better rates and more favorable terms, which means more money in your pocket every month. Refinancing is also a great chance to rethink your loan structure. You could consider shortening the term to pay off your home sooner or extending it for more breathing room in your monthly budget.

Don’t worry—it’s not as confusing as it might seem. The break-even point for refinancing is the moment your monthly savings from refinancing add up to cover the cost of the refi itself. To figure it out, divide your total refinance costs by how much you’ll save each month. For example, if refinancing costs you $5,000 and you’re saving $250 a month, it’ll take 20 months to break even. If you plan to stay in your home well beyond that period, refinancing could be a smart financial decision. 

Refinance costs to consider

Refinancing comes with costs, so be sure to factor in the upfront expenses. These typically include appraisal fees, credit checks, origination fees and other refinance closing costs usually amounting to 2%-6% of the new loan amount. You’ll also want to check if your current loan comes with a prepayment penalty.

Using a refinance calculator 

If you’re looking for some decision-making help, a mortgage refinance calculator can be a game-changer. Simply plug in a few essential details like your current loan balance, interest rate, estimated refinance costs and the rate you’re being offered. The calculator will give you a side-by-side look at your new potential monthly payment and total savings. It’s a quick, easy way to see the numbers laid out before making a big move. 

Great question. Everyone’s financial situation is a little different, so there’s no one-size-fits-all answer regarding when to refinance. But there are a few clear indicators that can help you decide if the timing is right for you. 

Scenarios where it makes sense 

• You can get a lower interest rate: If current refinance rates are lower than what you’re paying, refinancing could mean big savings over time. 
• Your credit score has improved: A stronger credit profile may qualify you for better loan terms. 
• You want to change your loan type: Switching from an adjustable-rate to a fixed-rate mortgage (or vice versa) can give you more financial stability—or flexibility. 
• You need to tap into home equity: A cash-out refinance can help fund home improvements, pay off high-interest debt or cover major expenses. 
• You want to pay off your loan faster: Refinancing to a shorter term can reduce your total interest and help you become mortgage-free sooner. 

When you might want to wait 

• You’re planning to move soon: If you won’t stay long enough to hit the break-even point for refinancing, it may cost more than it saves. 
• Your credit needs work: A lower score could mean higher rates and fewer benefits from refinancing. 
• Interest rates are high: If today’s rates are higher than your current mortgage, refinancing likely won’t make sense. 
• You’re already far into your loan: Restarting your mortgage clock could lead to paying more interest in the long run. 
• You can’t cover the refinance closing costs: Refinance expenses typically run 2%-6% of the loan amount. If that’s not in the budget, it may be better to hold off.

Speak with a Citi Mortgage Specialist to explore personalized refinance options.

Call us at 877-815-6935 (TTY: 711 or other Relay Service)