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Refinancing your mortgage

Do the numbers add up?

With mortgage rates historically low, many homeowners are considering refinancing. Should you?

Refinancing refers to the exchange of one debt obligation for another under different terms. Many homeowners refinance at least once during the term of a typical 30-year mortgage. Typical reasons to refinance include:

  • To reduce interest rate costs (by refinancing at a lower rate)
  • To reduce monthly payments, often through a longer-term loan
  • To extend the payback time
  • To raise money to pay off other debts or upgrade your home
  • To alter the mortgage structure, as in switching from a variable-rate loan to a fixed-rate loan

Experts say that refinancing may be worthwhile if the current interest rate on your mortgage is at least two percentage points higher than the common market rate. But you should also consider how long you plan to stay in your home. Since refinancing comes with many fees, it may take you several years to realize any savings earned through a lower interest rate.

If you do decide to refinance, prepare yourself for today's new era of credit scrutiny. Lenders have greatly increased their loan requirements. So check out your credit score before shopping for a lender, clean up any credit problems and determine if your home's current value is higher or lower than when you originally purchased it.

Refinancing a mortgage can be as time-consuming and stressful as taking out your first mortgage. So make sure you can commit to the process, and be certain that the terms of the new mortgage suit your objectives and situation.

Insurance issued by the Prudential Insurance Company of America, Newark, NJ, and its affiliates. Each is a Prudential Financial company that is solely responsible for its own financial condition and contractual obligations. Our policies contain exclusions, limitations, reduction and terms for keeping them in force. A licensed financial professional can provide you with complete details. The availability of other products and services varies by carrier and state. Prudential Financial, its affiliates, and other financial professionals do not render tax or legal advice. Be sure to consult with your personal tax and legal advisors.