Should You Refinance? 5 Key Questions to Ask

Refinancing your home can be a smart way to save money, pay off debt, or reach new financial goals—but it’s not always the right move for everyone. Before you commit, take a moment to think through these five key questions to see if refinancing makes sense for you.

1. What’s your goal?

Start with the “why.” Are you hoping to lower your monthly payment, shorten your loan term, or tap into home equity for major expenses? Knowing your purpose will help determine the best refinance option—like a rate-and-term refinance for savings or a cash-out refinance for extra funds .

2. How long do you plan to stay in your home?

Refinancing comes with closing costs, so the longer you stay, the more time you have to recoup those costs through lower payments. If you plan to move within a few years, the math might not work out in your favor.

3. What’s your current interest rate?

One of the most common reasons to refinance is to secure a lower interest rate. Even a small drop—say, from 7% to 6%—can lead to significant long-term savings. But if rates are higher now than when you first bought your home, it might be better to wait.

4. Has your financial situation improved?

If your credit score or income has increased since you took out your mortgage, you may now qualify for better terms. Refinancing could also help you remove mortgage insurance or switch from an FHA to a conventional loan with fewer long-term costs .

5. Are you considering tapping into your equity?

If you’ve built up significant equity, a cash-out refinance can help you access funds for renovations, education costs, or debt consolidation—all while maintaining a single mortgage payment . Just remember that it increases your loan balance, so it’s important to use the cash strategically.

The Bottom Line

Refinancing can be a powerful tool when done for the right reasons. The key is understanding your options and calculating the potential savings before you make a move.