When should you refinance your mortgage?

You do not always have to keep the conditions of when you established the initial mortgage contract. You can refinance the mortgage at different times, and in certain cases this can bring some advantages.

It can be difficult to know when to refinance a mortgage, especially if you are happy with the terms and payments of your current mortgage. But here we tell you what it means to refinance a mortgage and when you should consider the possibility, to take advantage of all the benefits.

What is refinancing a mortgage?

Refinancing a mortgage involves acquiring a new mortgage loan. This money pays off the remaining balance of the existing mortgage. Then a new mortgage contract is made, which is the current loan for your home.

This allows you to search for existing loans with a lower interest rate, and take advantage of the opportunities you find to lower your total payment.

Of course, it is important to consider that there are other costs associated with refinancing a mortgage. Such as the closing of the previous contract, and the beginning of the new one. Therefore, it is not a decision to be taken lightly, it is an option only when you believe it will bring significant benefits.

Aspects to consider before refinancing

Before refinancing a home, homeowners should consider three main factors that can affect their financial viability:

closing costs

When refinancing the mortgage you have to pay the closing of the contract. Although it is a value less than the "foot" of a mortgage, they are between 2% and 6% of the loan amount. If the value of the loan was high, this percentage can be significant for your pocket.

In some cases, the lender of the new mortgage may cover the closing costs associated with refinancing. Therefore, it is best to be clear about how much it will be and who will be responsible for the payment before starting the process.

Break-even period

It is important to determine the breakeven point (Break-Even Point) before carrying out a refinancing. This is when the money you are saving (by having a lower interest rate) exceeds the costs of closing and starting the contract that this process meant.

You can calculate the break-even point by dividing the closing cost by the monthly savings from each payment you will make on the new mortgage.

Understanding this point can determine if refinancing is a smart move for your family.

Cash Refinance Vs. Interest Rate/Term Refinance

Finally, you have to consider whether it will be a cash or interest rate/term refinancing.

The latter is a standard mortgage refinancing in which you exchange your current loan for a new one for the same amount of money. It can be with a lower interest rate, a shorter term of your loan, or both.

A cash refinance is similar, but you can also withdraw part of the principal in a single payment. You can allocate that money to whatever you need: as an investment, renovating your home or paying off debts. This option is only available if there is a significant difference between the current value of the house and the amount you owe.

Both options bring benefits, but it is important to determine which one suits your goals and financial needs.

When is it smart to refinance your mortgage?

Here are some situations where this process could be a good decision.

To get a lower interest rate

This could happen if interest rates drop in the national or international market. Also if you improve your credit score or get a new job, lower interest loan opportunities could open up.

To access the capital of your home

Home equity is the percentage that already belongs to you for having paid the initial mortgage. That is, as you paid off the mortgage, you accumulated equity.

If you access the capital through a cash refinance, you will have access to an immediate sum of money that you can use to pay off debts, renovate your home, pay for a child's college tuition or anything else.

This loan, compared to a consumer loan, is relatively cheap.

To pay off your loan faster

The usual mortgage term is 30 years. However, a 15-year mortgage is an option that allows you to pay less interest over the life of the loan and pay off the balance more quickly. It is important to note that this means a higher monthly cost.

To remove the PMI

PMI or private mortgage insurance usually kicks in if you can't pay the initial value or "foot" of a mortgage. To eliminate it you can refinance your mortgage. You can also request the cancellation of the PMI if you have already paid 20% of the house.

To switch from an FHA loan

FHA or Federal Housing Administration loans typically have Mortgage Insurance Premiums or MIPs that can cost you between $800 and $1050 a year for every $100.000 you borrow. If your down payment was less than 10%, you will have to pay the premiums for the rest of the life of the loan. If you want to get rid of those premiums, you can refinance to a loan that is not involved with FHA.

To change the type of loan (variable or fixed interest)

Adjustable-rate mortgages can start low, but can go much higher depending on market conditions. In contrast, fixed-rate mortgages offer more stable and consistent rates.


As you can see, there are different situations in which you can consider refinancing a mortgage. Being informed helps you make smart decisions about your financial future and that of your family.

Here at Miaminmobiliario we are willing to help you in the process of buying a home in Miami. Advising you at every step so that you make the best decisions.

This is a translation of the article: When Should You Refinance Your Mortgage?