When most homeowners think about refinancing, the focus is often on securing a lower interest rate. Traditionally, a 1% reduction in your mortgage rate has been a good indicator that refinancing could save you money. However, today’s market conditions, and your personal financial goals, make it worth looking beyond that rule of thumb.
Even if your rate reduction is less than 1%, refinancing may still make sense depending on your loan terms, home equity, or financial priorities. Here are five key considerations that could help you save thousands over the life of your loan.
1. Utilize Your Home’s Equity
Refinancing your mortgage can give you access to your home’s equity through a cash-out refinance. This option can be more cost-effective and secure than shorter-term borrowing methods like credit card advances, personal loans, or even variable-rate HELOCs.
A cash-out refinance lets you tap into your home’s value with the stability of a longer term and a fixed interest rate, offering greater peace of mind. Whether you’re planning home improvements, consolidating debt, or funding education costs,
using your home’s equity strategically can support your long-term financial goals.
2. Improve Loan Terms and Amortization
Refinancing also provides the opportunity to choose a shorter loan term, such as a 15-year or 20-year fixed-rate mortgage. While this may slightly increase your monthly payment, it can significantly reduce the total interest paid over the life of your loan, which helps you build equity faster and save more in the long run.
Shorter amortization periods often come with lower interest rates and can position you to be mortgage-free sooner. For many homeowners, this added financial freedom is worth the trade-off of higher monthly payments.
3. Explore Different Loan Types
Today’s lending landscape offers more flexibility than ever before, with several options for mortgage loans. Adjustable-rate mortgages (ARMs), for example, have become more attractive—especially as the Federal Reserve signals a potential lower-rate environment
Short-term ARMs, such as 5/6- or 7/6-month options, can offer lower payments for an initial period, followed by a variable rate later. These loan types can be ideal for homeowners who plan to move or refinance again before the adjustable period begins.
However, ARMs aren’t right for everyone. It’s important to discuss your financial goals, risk tolerance, and long-term plans with a mortgage advisor before choosing this option.
4. Consolidate Debt for Financial Stability
Refinancing can also help you consolidate higher-interest debt into one lower monthly payment. By rolling credit card balances, auto loans, or personal loans into your mortgage, you may reduce your overall monthly outflow and gain more control over your finances. This can simplify budgeting and free up cash flow for other goals, such as saving for retirement or home improvements.
Debt consolidation through refinancing can be an effective strategy to bring long-term financial stability to your household, especially when guided by a trusted mortgage professional.
5. Time Your Refinance Strategically
Timing matters when it comes to refinancing. Recent projections suggest mortgage rates may range from 7.0% to 6.25%, with the potential for further declines in the second half of the year.
That means waiting for the traditional “1% drop” may not be necessary. Even a smaller reduction could make financial sense depending on your situation, especially when combined with improved loan terms or debt consolidation benefits.
Ready to Explore Your Refinancing Options?
Whether your goal is lowering monthly payments, paying off your mortgage faster, or using your home’s equity wisely, our experienced team can help you evaluate your options and make confident, informed decisions.
Contact one of our Mortgage Advisors today for a full review of your current loan and financial position.
Authors
Kathryn Schulhafer
Senior Mortgage Advisor
About Kathryn
My “home” for several decades has been the world of residential lending, where I share proven experience, guidance and strategies with buyers of all kinds. I’m equally “at home” with first time home buyers, those who are seeking a larger residence, and clients who are refinancing or purchasing a vacation or second property, as well as those who are investing in real estate.
Leveraging an established network of other professionals – including attorneys, realtors, and builders – I’m eager to help my clients achieve their various home ownership goals. Kearny Bank offers financing from the New Jersey/New York region down to North Carolina, merging the strength of a major financial institution with the flexibility and attention-to-detail of a local lender. So just give me a call - I’d be delighted to work with you.
