Does Refinancing Make Sense for Me?

Refinancing a mortgage is one of those financial decisions that sounds simple on the surface, but the real value depends on how it fits into your broader financial plan. It’s important to evaluate refinancing not just by the rate offered, but by how the move supports long term goals, cash flow needs, and overall financial stability.

If you can lower the interest on your mortgage and meaningfully lower your monthly payment, this may be one reason to consider refinancing your mortgage. Interest rates have come down significantly in the past 12-month period, so the key question to answer here is whether the long-term savings of making the change will exceed the upfront closing costs for going through with the refinancing process. If you can breakeven on these two figures within a few years, refinancing may be worth exploring. This strategy really only makes sense, however, if you are planning to stay in the house long enough for the savings to compound to the breakeven point.

Another reason to consider refinancing is if you can shorten the terms of your loan. For example, refinancing a 30-year mortgage to a 15-year mortgage can dramatically reduce the total amount of interest paid over the life of the loan and accelerate equity growth. This could work well for homeowners who have stable cash flows and want to build wealth more aggressively.

There are, of course, many times that refinancing will not make sense. Primarily, if the math doesn’t support the move, refinancing can become an unnecessary expense. If the rate reductions are small, high fees to complete the refinancing process can quickly erode the benefit. Or, if the plan is to lower your payment and you’re refinancing a loan from a shorter term to a longer term, this may reduce what you pay today but could significantly increase the total interest paid over the life of the loan and delay other financial goals from being reached.

All in all, refinancing a mortgage loan should strengthen your financial plan over the long run, not just alleviate temporary financial pressure. Evaluating the decision through a planning lens ensures the move supports your long term goals.

- Margaret Gooley, CFP®, Reify Wealth Advisors

This article was included in the Reify Wealth Advisors Quarterly Newsletter.