Best HELOC rates Rates of 2024

Compare Refinance Options

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bestHELOCrates.com also makes it easy to decide. We tell you what you need to know before you borrow.

Our expert ratings and reviews guide you every step of the way. Based on our research, see which of the nation’s leading lenders and brokers perform the best for:

• Lowest Fees
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We also provide resources and tools, including a simple refinance calculator to see how much you stand to save by refinancing your loan.

What Is a Mortgage Refinance?

A refinance is when you replace your current mortgage with a new one. Much like the original mortgage, a refinance has the same components: the loan amount, interest rate, and the term.

The loan amount, or the principle, is the amount you want to borrow. The interest rate is the additional portion you are charged by a lender when paying back the loan amount. The term is the life of the loan and your payments. Common refinance terms include:

• 30-year term
• 20-year term
• 15-year term

Learn more about mortgage refinance here.

Is It a Good Time to Refinance?

Refinance rates are always changing.

How about your mortgage payment, is it time for a change? The answer is likely yes if you are interested in:

• Lowering your monthly bill
• Paying off your home faster
• Getting cash out for a remodel, repair, or other needs

How about your financial situation? Has it changed since you first started your current mortgage? If it has, refinancing could help you save by taking advantage of better circumstances or help you to meet certain financial goals.

Though everyone’s needs are different, here is how to determine if it is a good time to refinance:

• Interest rates are lower: If today’s rates are lower than your current mortgage, then it is probably a great time to refinance. By refinancing at a lower rate, you can potentially save thousands a year with lower monthly payments, or even a fortune by paying less in total interest over the lifetime of your mortgage.

  With the COVID-19 pandemic, interest rates are at historic lows. Lock them in while you can.

• Your credit score has improved: If your credit score was not up to par when you first took out your current mortgage, there is a good chance it has improved. If this is the case, it is recommended to refinance, as those with higher credit scores are often able to secure the lowest interest rates.

• Your home value has increased: If you purchased your home with a down payment of less than 20%, odds are you pay private mortgage insurance (PMI). PMI is the fee lenders charge to cover themselves in the event borrowers who own less than 20% of the equity or value of their home can no longer afford to pay the loan. If your home’s value has increased, your equity could now be 20% or more. In this case, refinancing would eliminate your PMI, potentially saving you hundreds or even thousands on your payment.

  Refinancing when your home value has increased also means that you have more equity to borrow against. People tend to take what is known as a cash-out refinance to fund home remodels, repairs, vacations, or other expenses.

• You want to switch to a fixed rate loan: An adjustable-rate mortgage (ARM) offers a fixed interest rate for a short term, only to become variable after the initial period. For instance, a 5/1 ARM will be fixed for five years, but going forward will adjust up or down to whatever the current rates are for the given month.

  Homeowners may choose an ARM for the flexibility. Initial fixed interest rates can be low. It can also be a good option for those who may not hold on to a property for the long term. However, if 30-, 20-, or 15-year interest rates are low now, it is often a wise financial decision to lock in an affordable fixed term while you can.

Essentially, any time you can lower your monthly payment, reduce the amount of total interest you pay, or take advantage of your home’s equity, it’s a good opportunity to refinance. Keep in mind that you must also factor in closing costs.

Closing Costs

Closing costs can include fees for loan origination, application, discount points, home inspection, and title. They will vary by lender, with most charging a one-time fee of about 2% to 3% of your loan amount, and some offering no closing costs at all. In most cases, closing costs can be spread across your monthly payments to blunt any immediate financial impact. With a lower interest rate, it often does not take long into your new loan to break even on closing costs.

After considering current interest rates, assessing your current financial needs and situation, and subtracting any closing costs, it should be apparent if now is a good time to refinance and save.

Refinance Examples

The numbers can be overwhelming. To make things easier, we have developed this simple refinance calculator, and included an example scenario below:

To begin, let’s say a homeowner purchased a house that costs $400,000. After giving a down payment of 20%, the homeowner took out a 30-year mortgage at an interest rate of 4.50%.

Scenario 1: Stay on the original mortgage.
Here are the numbers if this homeowner never refinances:

In this scenario, after 30 years the homeowner ends up paying $277,725 in lifetime interest. Along with the $6,400 initial closing cost, the total cost to borrow $320,000 is $283,400.

Scenario 2: Refinance 5 years after date of home purchase.
Now, let’s say instead of completing the above mortgage, this same homeowner notices interest rates have dropped, and decides to refinance.

Here are the numbers for a 30-year refinance after being on the original mortgage for five years:

With a more favorable interest rate of 3.30%, this homeowner stands to pay $166,502 in lifetime interest. Add the interest already paid from the original mortgage ($72,216), along with both closing costs, and this homeowner will spend $246,220 in mortgage costs. That is not only $37,100 less than the original loan, but this homeowner’s monthly payment is also lower by $389, or almost $5,000 per year. After considering the additional five years of being a loan, the monthly payment savings add up to another $40,440, bringing the total savings to $77,540.

Scenario 3: Refinance 5 years after date of home purchase, but with a shorter term.
How would the above look if this same homeowner refinanced from a 30 to a 20-year term?

Though the monthly payments are comparable to the original mortgage, the reduction in lifetime interest paid would be substantial, or $97,579 in savings. Additionally, this homeowner would pay off their home five years faster. Those five years of fewer payments adds up to another $99,600, bringing the total savings to $197,179.