Refinancing your loan to get a lower mortgage rate sounds like a good idea. But is it the right move for you? This decision—and the right time to refinance your mortgage - will be based on a few factors.

Your deciding factors can include any of the following:

• Wanting a shorter term in order to pay off the loan faster
• Wanting a lower interest rate in order to pay less in interest payments
• Converting from an adjustable-rate mortgage to a fixed-rate mortgage, or the other way around
• Consolidating debt or gaining cash to finance a large purchase or emergency by using home equity that has built up

At first, the idea of paying less money in a shorter amount of time sounds like a win-win situation. However, you need to consider how much longer you will live in the house and the amount of money you will save (or spend) when refinancing.

When refinance rates fall more than 1% below your current rate, traditional thinking states it’s a good time to refinance. Yet this won’t work for everyone. (Even when rates are at an all-time low due to an event such as the COVID-19 pandemic.) You also need to look at your credit score and your home’s equity. The actual mortgage refinance rate will depend on these factors more than the interest rate a company shares on their website or a bank has posted in their branches.

After calculating the cost of refinancing—including appraisal, origination fees to process a new loan application, closing costs, mortgage insurance, credit check, and any penalties for paying off the loan early—you might find that the cost to refinance is more than the amount you would save.

Even looking at your new monthly payment amount won’t tell the whole story. You will need to figure out the break-even point. If it will take three years to pay off closing costs of the new mortgage, and you move before that time lapses, you will lose money.

If refinancing rates are trending downward, it might be a good time to convert from a fixed-rate loan to an adjustable-rate mortgage (ARM). Decreasing rates mean smaller monthly payments, and you won’t need to refinance as the rates continue to fall. However, if rates are increasing, you won’t want to go this route.

On the other hand, if you have an ARM, you might find that adjustments have led to interest rates that are higher than those with fixed-rate mortgages. Switching to a fixed-rate loan will offer you a lower, more stable interest rate.

Finally, if you’re considering refinancing in order to access your home’s equity, make sure you won’t put yourself into further debt. If you’ve racked up a lot of high-interest debt that you’re trying to consolidate into payments with lower interest, you won’t necessarily gain the financial skills to prevent this situation from happening again.

In the end, if you find that refinancing can help you reduce your mortgage payment, loan term, or help build equity more quickly, it’s probably the right time to refinance your mortgage. Weighing your options can be overwhelming. At Consumers National Bank, we have a team of local lenders who can help you determine if refinancing your mortgage now is right for you. Reach out to us today.