Everything You Need to Know About Refinancing Your Mortgage

Thinking about refinancing your home mortgage? You’re not alone. Many homeowners do it to get a lower interest rate, reduce monthly payments, or tap into their home’s equity. But before jumping in, it’s important to understand how refinancing works and whether it’s the right move for you.

Refinancing can be a smart way to save money, but timing and market conditions matter. Mortgage rates go up and down, and a small difference in your interest rate could mean big savings over time. If you’re wondering whether now is a good time to refinance, let’s take a look at what’s happening in the market.

Current Trends in Mortgage Refinancing

Refinancing has been picking up speed lately. More homeowners are looking for ways to lower their monthly payments, especially as interest rates shift.

Recently (as of early February 2025), mortgage refinancing applications jumped by over 12% as rates dipped. When interest rates drop, homeowners rush to lock in lower payments. Even a small decrease in your rate can save you thousands of dollars over the life of your loan.

Right now (again – this is being written in February 2025), the average 30-year fixed mortgage rate is hovering around 6.13%, which is a bit lower than it’s been in recent months. But rates change all the time. If you’re thinking about refinancing, staying up to date on trends is key. Just a couple of years ago they were as low as 4% and they’ve been as high as 7.5% recently. That said, they’ve been much higher in the past.

Many homeowners refinance to shorten their loan term, as well – it’s not always about the rate. Moving from a 30-year to a 15-year mortgage can save a lot on interest in the long run. Others choose cash-out refinancing to use their home equity for big expenses like home renovations or debt consolidation.

No matter your reason for refinancing, understanding the market helps. Lower rates mean more savings, but fees and closing costs can add up. Before making a decision, it’s important to know what to expect.

Is Refinancing Common? How Much Can I Save?

A lot of people refinance their homes every year. It’s a common way to save money or take advantage of better loan terms. But how many people actually do it, and how much do they save?

In 2023, about 16 out of every 1,000 homeowners refinanced their mortgage. That might not seem like a lot, but when you consider the millions of homes across the country, it adds up fast. Refinancing is especially popular when interest rates drop.

So how much can you save? We don’t have very recent data on this, but on average, most homeowners who refinance lower their mortgage rate by about 1.15 percentage points. That might not sound like much, but it can mean big savings. A lower rate often leads to lower monthly payments, which can free up money for other expenses.

It’s not just about monthly payments, though, as mentioned above, many refinance to shift their loan length.

Benefits of Refinancing

So, why do people refinance? There are a few big reasons:

1. Lower Monthly Payments

A lower interest rate means a lower mortgage payment. Even a small difference in your rate can save you hundreds of dollars per month and thousands over the life of your loan. If cutting your monthly expenses is your goal, refinancing might be worth considering.

2. Shorter Loan Term

Want to pay off your home faster? Refinancing from a 30-year to a 15-year mortgage can help. You’ll pay off the loan sooner and save a ton on interest. The trade-off? Monthly payments will likely be higher, but you’ll build equity faster and own your home outright much sooner.

3. Tapping into Home Equity

If your home’s value has increased, you might be able to use a cash-out refinance to access some of that equity. This can be helpful for things like:

• Home renovations
• Paying off high-interest debt
• Funding a big purchase or investment

Keep in mind, though, that borrowing against your home means you’ll have a larger loan balance. Make sure it’s the right move for your financial situation.

4. Switching to a Fixed-Rate Mortgage

If you have an adjustable-rate mortgage (ARM), refinancing to a fixed-rate mortgage can give you more stability. With an ARM, your rate can change over time, which means your payment can go up unexpectedly. A fixed-rate mortgage locks in your rate, so your payments stay the same every month.

Refinancing can be a smart move, but it’s not always the right choice for everyone. Before making a decision, it’s important to weigh the costs and benefits.

Things to Consider Before Refinancing (and Expert Tips to Get the Best Deal)

Refinancing can be a great financial move, but it’s not always a no-brainer. Before you jump in, here are a few things to think about—and some expert tips to help you get the best deal.

1. Refinancing Comes with Costs

Lowering your interest rate sounds great, but refinancing isn’t free. There are closing costs, appraisal fees, and lender charges. On average, refinancing costs 2% to 5% of your loan amount. That means if you owe $200,000 on your mortgage, you could pay anywhere from $4,000 to $10,000 in fees. And the process can take some time.

2. Your Break-Even Point Matters

The break-even point is how long it takes for your savings to cover the cost of refinancing. If refinancing saves you $150 per month, but it costs $6,000 in fees, it’ll take 40 months (about 3.5 years) to break even. If you plan to move before then, refinancing might not be worth it.

Tip: If you’re not sure how long you’ll stay in your home, use a break-even calculator to see if refinancing makes sense.

3. Your Credit Score Affects Your Rate

Just like when you got your original mortgage, lenders check your credit score before approving a refinance. A higher score usually means a lower interest rate. If your credit has improved since you bought your home, you might qualify for a much better deal.

Tip: Check your credit score before applying. If it’s low, consider paying down debt or correcting errors on your credit report to boost it before refinancing.

4. Not All Lenders Offer the Same Rates

Different lenders have different fees, interest rates, and loan options. The first offer you get might not be the best one.

5. Timing Is Everything

Mortgage rates go up and down based on the economy, inflation, and Federal Reserve decisions. A small change in interest rates could mean big savings—or extra costs.

Tip: Keep an eye on market trends. If rates are low but expected to rise, you may want to lock in a rate sooner rather than later.

6. Refinancing Isn’t Always the Best Move

Sometimes, it’s better to stick with your current mortgage. If you’re almost done paying off your loan, the costs of refinancing might not be worth it. And if you’re refinancing to pull out cash, be sure you’re using that money wisely—taking on a larger loan balance can be risky.

Tip: Talk to a mortgage expert (like our team here at UHLS) or financial advisor before refinancing. They can help you decide if it’s the right choice based on your long-term goals.