Refinance Calculator - Should I Refinance? | Zillow (2024)

FAQs

How to determine if refinancing is worth it? ›

Refinancing for a Lower Interest Rate. One of the best and most common reasons to refinance is to lower your loan's interest rate. Historically, the rule of thumb has been that refinancing is a good idea if you can reduce your interest rate by at least 2%.

Moving into a longer-term loan: If you're already at least halfway through the loan term, it's unlikely you'll save money refinancing. You've already reached the point where more of your payment is going to loan principal than interest; refinancing now means you'll restart the clock and pay more toward interest again.

It is usually worth to do so if you can lower your interest rate enough to save money month-to-month and in the long term. Depending on your current loan, dropping your rate by 1%, 0.5%, or even 0.25% could be enough to make refinancing worth it.

If you don't have other debt to consolidate and you're not looking to tap into your home's equity, then a 1% drop in mortgage rates probably isn't worth it if doing so raises your mortgage interest rate. But if you can save money, it may be valuable.

Refinancing allows you to lengthen your loan term if you're having trouble making your payments. The downsides are that you'll be paying off your mortgage longer and you'll pay more in interest over time. However, a longer loan term can make your monthly payments more affordable and free up extra cash.

An often-quoted rule of thumb says that if mortgage rates are lower than your current rate by 1% or more, it might be a good idea to refinance. But that's traditional thinking, like saying you need a 20% down payment to buy a house. Such broad generalizations often don't work for big-money decisions.

Refinancing to lower your monthly payment is great unless you're spending more money in the long-run. Moving to an adjustable-rate mortgage may not make sense if interest rates are already low by historical standards. It doesn't make sense to refinance if you can't afford the closing costs.

With a cash-out refinance, the borrower takes out a new mortgage for more than the previous loan, uses the funds to repay the old loan, and receives a lump sum cash payment for the remaining funds. As a result, a cash-out refinance increases your monthly payment and mortgage loan debt—please consider carefully.

You might want to consider refinancing your mortgage in 2024, especially if you got your mortgage in the last year and interest rates fall, or your specific circ*mstances call for a new loan.

What is a good refinance rate? ›

Some experts say you should only refinance when you can lower your interest rate, shorten your loan term or both—but those aren't the only reasons. For example, you might need short-term relief from a lower monthly payment, even if it means starting over with a new 30-year loan.

Typically, it is worthwhile to refinance if the reduction in total interest expected to be paid over the life of the loan is greater than the cost of acquiring the loan. Monitor refinance rates regularly and use Zillow's free refinance calculator to make sure a refinance is worth it for your financial circ*mstances.

If you have a mortgage with a higher balance and rate, a drop of 0.5% interest could be worth refinancing, according to Dell. "For a lower balance, rate and term refinance, it may be at least 1% or more to be worth your time and money," Dell says. It's also important to consider how long you plan on living in the home.

A general rule of thumb is that it makes financial sense to refinance your mortgage if you can secure a rate that's at least 1% lower than the one you currently have. During the pandemic, mortgage interest rates hit historic lows and a rush of homeowners were able to refinance with lower interest rates.

Refinance to pay for home improvements or education costs

When you need cash to pay for home improvements or repairs that might increase the value of your home, it may make sense to accept a higher rate.

Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent). This also helps you avoid private mortgage insurance payments on your new loan.