When to know if you need to refinance a mortgage
In some cases, refinancing a mortgage is done to lower payments by extending the time that the loan will exist.
For example, you might have a 15-year loan that is a couple of years old and are having trouble with the amount of the payments. You could refinance (and hopefully with a lower interest rate) to a 30-year loan and expect your payments to drop significantly. However, you will be making payments for much longer.
A more common motivation to refinance a mortgage is to reduce the rate of interest paid on the loan.
Refinancing for this reason was common until recently, as mortgage rates ranged from only 2% to 4% since around 2009.
Dropping interest payments over a long mortgage can save tens of thousands of dollars.
However, refinancing is not free. Most of the time, this process takes time, paperwork and $2,000 to $5,0000 in various fees. There are certain instances in which refinancing a mortgage may not make sense. One time is during the last five years or so of a typical 15- to 30-year mortgage.