When should you refinance a mortgage?

Refinancing your mortgage may lower your interest rate and monthly payments, saving you money now and over the lifetime of your loan. If you have equity in your home, you could even take cash out while refinancing to help consolidate debts or fund home renovations. Even when there’s a market with higher rates that might deter some from getting a refinance, refinancing may still be a great option, depending on your financial situation.

When is a good time to refinance your home

Because there is no definitive answer as to when you should refinance your mortgage, the best time to refinance your mortgage is going to be heavily dependent on your own personal circumstances.

It can be a good idea to refinance your mortgage if:

• You’ve had your original mortgage for at least six months: This is a requirement for many lenders. It’s often known as the “six months rule.”
• You plan on staying in your current home: Since there are closing costs associated with a mortgage refinance, it may be best to refinance when you’re planning on living in your home for quite some time. However, if you plan to sell soon and can find a no closing cost refinance, going with that option may save you money. 
• You can lower your interest rate: If market rates are lower than your original rate or your measures of credit and income are improved from your original mortgage, you may be able to take this opportunity to refinance and decrease your monthly payments. If you’re curious to see how much refinancing could save you, use this mortgage refinance calculator to get an idea of your potential savings.
• You’ve built equity in your home: If the appraised value of your home exceeds the amount you still owe, you may be able to tap into that equity with a cash out refinance.
• You have a good credit score: The higher your credit score, the more likely it is that you may be able to get approved and possibly receive offers for more favorable loan terms.

Other reasons to consider a mortgage refinance

• Pay off your mortgage loan faster: If you’re paying off a 30-year mortgage, you could refinance it to a 15 or 20-year term, allowing you to pay off your loan faster. While your monthly payments may increase when you shorten your loan’s term, you’ll likely pay less interest in the long run.
• Lower monthly payments: With a lower interest rate locked in, generally, you can enjoy lower monthly payments over the lifetime of your new loan. Decreased payments over a fifteen or thirty-year period can, depending on your circumstances, amount to significant savings. You can also refinance into a longer-term mortgage — while this will lengthen the amount of time you pay your mortgage, it can reduce monthly payments. 
• Lower interest rates: If market interest rates are low, you could choose one of those new, lower rates when refinancing your mortgage. This may help you save money and pay less total monthly interest. If your original mortgage was taken out when you had a lower credit score or less income, you may also find that the current rates available to you through refinancing are improved. Converting to a lower-rate mortgage through a refinance can help you reduce your interest charges over the life of the refinanced loan.
• Cash out equity: If you’ve built up equity in your home, you may be able to convert that equity into cash while refinancing with a cash out refinance. You can use that money for home renovation projects or having emergency cash on hand. If you have a considerable amount of high-interest personal debt such as credit cards or personal loans, accessing some of your home’s equity to pay it off could save a lot of money in interest payments over time. Using a debt consolidation calculator can help you determine if this makes sense for your finances.

When is it not worth it to refinance

Ultimately, the best time to refinance a mortgage is when you financially benefit from refinancing. This means you should probably wait to refinance your mortgage if the refinance will have no effect on your finances or will be a detriment to your finances due to closing costs and fees.

It may not be a good time to refinance your home if:

• You’re planning to sell your home or pay off your mortgage soon: If you’re looking to sell your home soon, you may not enjoy the benefits of your new mortgage, and it may be tough to justify spending time and money on refinancing.
• You’re still building up your credit score: You may want to take time to prove your creditworthiness and increase your credit score by making on-time debt payments in full and keeping your credit utilization ratio low.
• Market interest rates are high: You may not want to get stuck with a higher or even similar interest rate on top of additional refinancing fees and closing costs. Shopping between lenders can help you understand if competitive rates are available when compared to your original mortgage.
• Home values have decreased: If average home values in your area have decreased considerably, you may want to wait on a refinance since there is potential your home could appraise at a lower value than when you purchased it.

Is 2025 a good time to refinance?

Whether 2025 is the right year to refinance will depend on your unique situation and financial needs.

If you’re looking to refinance to obtain a lower interest rate, it’s typically best to apply for a refinance when rates have dropped at least 1% from your original mortgage rate. Despite the unpredictability of the housing market, experts such as Fannie Mae and the Mortgage Bankers Association have predicted that rates will close out the year between 6-7%. If that means you’ll obtain a 1% decrease in your interest rate, you may want to consider refinancing.

Additionally, homeowners who may receive other benefits from refinancing, such as a lump sum of funds, debt consolidation, or a shorter mortgage, may want to refinance in 2025 to take advantage of these opportunities. They could also consider refinance alternatives such as home equity loans.

How long does it take to refinance?

The specific amount of time will vary by lender, but a refinance usually takes several weeks to close. This is because the home needs to be appraised and inspected, and the lender needs to prepare all the proper paperwork.

The timeline can be broken down like this:

1. Getting the basics

Apply online or over the phone to review your loan options, then upload the required documents. We’ll confirm your initial eligibility.

2. Processing your information

We’ll gather third-party information about your home and then send your complete application to underwriting for a final decision.

3. Closing your loan

We’ll contact you to schedule your closing and then arrange for your loan funds to be sent to your accounts.

When you apply for a mortgage refinance, you will receive updates on your progress all along the way. In general, the faster you can provide the requested information to confirm your eligibility, the quicker your loan file will move through the application process.