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Should You Refinance Your Mortgage?

Laura Meltzer


Sometimes it makes sense to refinance a home loan. But there are also times when it's best to skip refinancing, even if your interest rate is low or you have cash for closing costs. This article takes a look at the pros and cons of refinancing for homeowners with good credit standing. It starts off by introducing people who could benefit most from this type of transaction besides mentioning the reasons why they should or shouldn't proceed with refinancing. 

You'll see what lenders are looking for in applicants' profiles, how much money would be saved, depending on the situation, whether it's worth pursuing refinancing in general along with other things you need to know before taking the leap. Whether you're in a position to apply for a new loan or not, make sure you understand the responsibility of refinancing your current home loan. 

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Do You Qualify For A Refinance Loan?

Getting pre-approval from your lender is one thing that could help determine whether or not you can get lower monthly payments with a refi. It's designed to estimate the lowest interest rate and payment you would be offered based on the information you provide about yourself and your property, usually through an online application. Lenders may also run what's called a "soft" credit check that doesn't affect your credit score to see if you appear eligible for other types of loans (for example, auto financing). 

Anyone who applies for any type of loan with a credit score of at least 620 qualifies for the lowest interest rates, even with no money coming out of pocket to pay closing costs (the fees the lender charges to process your new mortgage) or points (which can also reduce your interest rate). Additionally, lenders will charge higher closing costs and/or more points if you're looking for a shorter-term on your refinance.

How Much Money Can You Save?

If you haven't shopped around for a better deal recently, now may be the time to do so. After years of historically low-interest rates, banks are starting to increase their lending rates. However, there is still some benefit in refinancing because home prices have dropped significantly since 2007; this gives many homeowners equity in their homes, which lenders like to see . Also, homeowners usually pay less interest with a refinance than they did on their previous loan. Refinancing into a 15-year loan at an interest rate of 5% and no points would reduce your monthly payment by $490 (or nearly 19%). 

Make sure you factor in closing costs and other fees when looking at how much refinancing may save you. If you want to continue living in the house after refinancing, consider paying points if rates are low — it can make sense if it reduces your interest rate enough to recoup the cost over time (like on a 30-year mortgage). It's also often better for homeowners who plan on selling the house soon or within 10 years; that way, refinancing doesn't lock you into a higher-rate loan.

Online Mortgage Calculator

If it sounds like refinancing is your best option but you're not sure how much money it might save you, an online mortgage calculator can show you. The monthly savings will depend on three things: the interest rate for your new loan (a lower rate equals bigger savings), any points or closing costs that come with it, and the length of its term (the longer the term, the more interest paid overtime). 

BOTTOM LINE: If you were thinking about refinancing in 2022 because rates are still so low, now may be a good time to take action — especially if your credit score has improved. Mortgage rates increased slightly at the end of 2019, but they are still very competitive compared with historical averages. You can check current mortgage rates by visiting the Loan Savings Calculator on Zillow. Also, it's important to consider all associated costs before making a decision about refinancing so you know exactly what your monthly payment will be. This way, you'll have a better idea of whether or not refinancing is truly beneficial for your financial situation. 

If you're considering applying for a refinance loan because your credit score has improved since you first bought/mortgaged your home, speak with lenders about whether or not you could qualify for lower interest rates and terms. Remember that there may also be closing costs and other fees involved which can increase the total cost of your loan. Finally, if you're thinking about refinancing because you'd like to reduce the length of your mortgage's term, speak with lenders to see if this is possible and to determine whether or not it would be financially beneficial for you.


When considering whether or not to refinance your mortgage, it's important that you understand the costs associated with refinancing. A lower interest rate can be beneficial if paying points is within budget and will reduce your monthly payments enough so they are worth more than what you paid in closing costs. Refinancing may also help increase equity through a drop in home prices, but if rates rise too quickly for homeowners to recoup their investment on points, then this could turn into another risky financial move. If you're looking at shortening the term of your loan because of its duration, before making any decisions speak with lenders about how much money refinancing might save. 

They may offer different terms or loans that would work better for your personal finances and goals. Finally, if you're thinking about refinancing because your credit score has improved, lenders may offer different terms or loans that would work better for your financial situation. If you decide to refinance, then check out Zillow Mortgage Marketplace for competitive rates and offers from multiple lenders in one place or you could browse our list of the top 10 mortgage lenders and find one that's right for your circumstances.