The main benefit of refinancing your mortgage loan is clear – to benefit from a lower interest rate and to save money, both in the short term as well as over the term of your mortgage.  At the moment, mortgage rates are as low as they have been for a long time and if you are thinking of refinancing, this is probably a good time to do it.  As with any other big financial decision, there are pros and cons you’ll need to think through carefully.  It’s always a good idea to seek expert financial advice before making decisions, too.

The biggest benefit of refinancing your mortgage – although not the only one – is to save money by refinancing at a lower rate.  Not only will your monthly mortgage payment be lower, but you will also save money in interest charges.  You can potentially save a lot of money over the term of your mortgage by refinancing – an interest rate that is just one point lower can potentially save you up to $5,000 over the term of the average 15 year mortgage.  In general, if your new mortgage loan will have an interest rate that is at least 2% lower than your current rate, you should probably refinance.

You may have an adjustable rate mortgage (ARM) and are concerned about your rate going up, rather than down.  Refinancing also allows a homeowner to refinance to a fixed rate mortgage (FRM) which offers more stability and peace of mind.  You can’t always predict which way mortgage rates are going to go, but if mortgage rates seem to be on the way up, refinancing at a lower fixed rate may be a good idea.  However, if you do have a fixed rate mortgage with a higher interest rate, it may benefit you in the long run to take a chance and refinance to an adjustable rate mortgage.  It all depends on your financial state and the amount of risk that you are comfortable with.

Refinancing can also allow you to pay off your mortgage more quickly, in addition to saving you money.  If you refinance your existing 30 year mortgage to take advantage of lower interest rates, you may also be able to shorten the term of the mortgage at the same time – the big advantage of this is that you will own your home more quickly.  Reducing the term of your mortgage will also allow you to build up equity at a much faster rate.  Of course, if you refinance from a 30 year mortgage to a 20 year mortgage, you may have a higher monthly payment amount, but it is an effective way to take advantage of lower interest rates to own your home sooner.  If you are planning on an early retirement, this can help make that a reality.