How Much Can I Save with a Home Refinance?

How Much Can I Save with a Home Refinance?

If you’ve been wondering whether it’s worth it to refinance your mortgage, you’re not alone. Many homeowners ask, “How much can I really save if I refinance my mortgage?” The short answer is it depends.

While every situation is unique, refinancing can be a smart financial move, especially if it helps you reduce your interest rate, lower your monthly payments, or pay off your loan sooner. Here, we’ll walk through when it might make sense to refinance, how it can save you money, and share an example of what those savings could look like.

When Does Refinancing a Loan Make Sense?

Refinancing a loan can make sense in several situations. The goal of refinancing is to save you money in the long run. This can be done by reducing monthly payments and overall interest costs.

It’s important to carefully consider the costs associated with refinancing and make sure that the new loan aligns with your financial goals and budget. Ultimately, refinancing can be a smart financial move if it helps you save money, pay off debt faster, or achieve other financial goals.

Refinancing a loan can make sense in several situations, including:

Improved Credit Score

If your credit score has improved since you took out your original loan, you may be able to qualify for a lower interest rate on a new loan. A higher credit score can also make you a more attractive borrower to lenders.

Changing Your Rate Type

There is a possibility interest rates have dropped since you took out your original loan. You may be able to save money by refinancing to a lower interest rate. A lower interest rate can result in lower monthly payments and overall interest costs over the life of the loan.

The same principles can be applied if you have a variable-rate loan and want to switch to a fixed-rate loan to lock in a stable interest rate.

Lowering Your Monthly Payments

When you refinance, you may be able to get a lower interest rate on your new loan. This means you’ll pay less in interest charges over the life of the loan, and your monthly payments may be lower.

Additionally, if you refinance and take out a new loan for a smaller amount than your original loan, your monthly payments may be lower.

The term of the loan will affect the monthly payment. There is the possibility that the new loan term is shorter, which causes the payment to be higher even if the rate is lower.

Payoff Your Loan Faster

If you want to pay off your loan faster or extend the loan term to reduce your monthly payments, refinancing may be a good option. For example, if you currently have a 30-year mortgage but want to pay it off in 15 years, you could refinance to a 15-year mortgage.

Will Refinancing Always Save Me Money?

Not necessarily. Refinancing comes with upfront costs, including appraisal fees, closing costs, and loan origination fees. It’s important to weigh these costs against your potential savings.

A good rule of thumb is to calculate whether you can recoup the cost of refinancing within two to three years through lower monthly payments or interest savings. If you plan to stay in your home for at least that long, refinancing might be a smart move.

Example: A Look at Potential Savings

Let’s say you currently have a 30-year mortgage for $200,000 at a 6.5% interest rate.

• Your monthly principal and interest payment: $1,264
• Total interest paid over 30 years: $255,088

Now imagine refinancing into a new 30-year mortgage at a 5% interest rate (and assuming $4,000 in closing costs rolled into the loan):

• New loan amount: $204,000
• New monthly principal and interest: $1,095
• Total interest paid over 30 years: $189,911
• Total monthly savings: About $169/month
• Total interest savings: Over $65,000

Even with closing costs factored in and what looks like only modest monthly savings, there’s a significant long-term benefit.

The Bottom Line: Should I Refinance My Mortgage?

Refinancing isn’t a one-size-fits-all solution, but it can be a powerful financial tool if you use it at the right time. If you’re aiming to lower your payments, reduce your interest rate, or pay off your home faster, refinancing could help you move closer to your goals.

At Marine Credit Union, we can help you explore your options and crunch the numbers. Use our Refinance Calculator to estimate your potential savings, or connect with one of our experienced home loan experts to see if refinancing is right for you.