Mortgage Refinance – Here’s What You Should Know

mortgage refinance - time to lower your payments

When you first buy a house, everything is very fresh and new. It is likely going to be the biggest purchase you have made in your life up to that point. At the time of obtaining the mortgage, you will usually see the monthly payments as being manageable on a monthly basis.

Oftentimes, you will be young and have limited financial burdens such as children or medical issues. However, as time goes on and you get older, there is often a lot more financial distress in your life as you have to spread your resources thinner in order to provide for your family.

When adding unexpected economic setbacks, such as the COVID-19 pandemic and your mortgage payments can quickly start to become a burden. You may have lost your job or simply need to make your money stretch a bit further.

These are common times when people decide to refinance their mortgage, allowing them to possibly lengthen the repayment schedule and pay a lesser sum every month to their lender.

Then there are times when you can simply take advantage of lower mortgage rates today and save money in the long run. You also may now be able to comfortably afford paying off your mortgage at a quicker rate.

This guide looks at what is refinancing a mortgage, the pros and cons of refinancing a mortgage and how you can take advantage of lower mortgage rates today.

What is refinancing a mortgage?

What is refinancing a mortgage? This means that you are going to pay off an existing loan and then use a new loan to replace it. There are many different reasons why a homeowner may decide to go down this route.

There may be a lower mortgage rate today on offer, decreasing your total mortgage payments if you refinance thanks to this lower rate of interest. You may want to shorten the term of your mortgage as you are now in a position to pay higher monthly payments in order to pay off your debt quicker.

Some people may want to convert from a fixed-rate mortgage to an adjustable-rate mortgage or vice versa. Other people may be in a difficult financial situation which means they will look to lengthen the terms of their mortgage in order to pay lower monthly payments.

They may also try to tap into their home equity in order to get funds for financing a big purchase, dealing with a financial emergency, or as a way to consolidate debt.

There are costs associated with refinancing your mortgage, so all factors have to be fully considered before you proceed with this strategy.

Bad reasons for refinancing

While there are certain situations where it might not be a bad decision to refinance your mortgage, there are also scenarios when refinancing your mortgage is not usually a good idea.

While debt consolidation has a lot of advantages, it is important that it is done in a smart way. If you mess up some part of the process, this can be very costly for a homeowner. This is because you are often using your home as collateral. Therefore, if you start missing payments on your debt, you can run the risk of foreclosure. People often also fail to change their habits and fall into building up new credit card balances after clearing them, leading to further repayment issues.

It is usually best to avoid lengthening the time period of your mortgage loan. Even if you are getting a lower mortgage rate today for switching to a longer-term, you need to do the calculations and to see what the final cost would be by the end of each mortgage term option. You will often find that the additional interest you pay on the longer term is greater than the savings you will get from lower mortgage rates today.

Finally, another poor reason to refinance is to simply lower your monthly payments. A lot of people go down this route without considering the costs that you have to deal with when refinancing. This can often be 2%-3% of the total home loan.

Good reasons for refinancing

While you have seen some of the reasons for not refinancing your mortgage, there are some situations when it could be a good idea. If you run the numbers and see that when including the various costs of refinancing a home loan are not greater than the savings from switching to a lower interest mortgage over the same time period, then it can be a good idea. This allows you to take advantage of some of the lowest mortgage rates that have been around for some years.

Another good reason to refinance your mortgage is to shorten the total term of the loan. Oftentimes, there will not be a significant increase in your monthly payments when you are shortening the term of your mortgage loan and paying a lower interest rate. In this situation, refinancing is a no-brainer. You will fully own your home sooner and you will be paying less than you previously were going to over the course of the loan.

There are also circumstances when it is a smart idea to convert from an adjustable-rate over to a fixed-term mortgage and vice versa. Both of these types of mortgages are preferred in different situations, so you need to do your homework before converting.

Finally, there can be some situations when it can be okay to refinance in order to consolidate debt or tap into equity. This may be when you take out equity to do some house renovations that will ultimately add value to the property.

Using your low-interest mortgage to replace high-interest debt should only be done if you are fully convinced that you can change your ways and not get trapped into a new cycle of accumulating debt.

Simplifying the process

While it can be very stressful and uncertain when you are in a situation where you are considering what is refinancing a mortgage and when to do so, the process is usually not as daunting in reality as it may appear to be. Once you know what is refinancing a mortgage and when it is a good or bad idea, you can then move onto the next step.

If you work with professionals who know the ins and outs of refinancing, this will take a lot of the pressure off your shoulders when you are trying to make a correct decision. You can quickly see all of the different refinancings offers that are currently available and quickly compare great rates and company reviews at Lendstart.


As you can see, the decision to refinance your mortgage will largely depend on your specific situation. It is vital that you make a clear-headed decision that makes sense over the long run.

With mortgage rates today being pretty low, it can often generate good savings if you refinance. If you can comfortably afford to pay higher monthly payments, refinancing to shorten the time period of your mortgage is another no-brainer.

Ultimately, the advice of professionals is usually your best strategy before you pull the trigger and commit to refinancing. This way you can compare the various refinancing offers and read reviews of each company. As a result, you will not be overlooking any potentially important aspects of a situation.

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Andrew Omalley Andrew Omalley Last update:
Andrew is a freelance writer who has been crafting valuable pieces of content relating to personal finance for more than five years. Previously, he studied Economics & Finance at university and he has professional qualifications relating to financial advice.