When to Refinance

Your home may be the largest asset you own. Get the information you need to make informed refinancing decisions by using ARC's Mortgage Center portal.  Find out how long it will take to break-even on a refinance using our Refinance Breakeven Calculator.

Why are you looking to refinance?

1. Lower Your Monthly Payment

Lower your interest rate

  • Interest rates are at historical lows. Now may be the time to refinance!

Eliminate private mortgage insurance (PMI)

  • If your original down payment was below 20%, you're probably paying PMI.
  • If you have made timely payments for a period of time, you may have established enough equity to eliminate PMI which could lower your monthly mortgage payments.

Refinance to a longer-term loan

  • A longer-term loan can lower your monthly payments, but increases the total interest you'll pay over the life of the loan.
  • You may have additional costs from the closing transaction.
  • If other debts are causing cash-flow issues, consider Debt Consolidation, which may enable you to lower the total of your monthly payments

Pay discount points to reduce your interest rate

  • If you plan on staying in your home for an extended period of time, it might make sense to pay discount points to reduce your interest rate.
  • One discount point – which is 1% of your loan amount – reduces your interest rate approximately 0.25%, reduces monthly payments and interest over the life of a fixed-rate loan, and may be tax deductible. (Consult your tax advisor on the deductibility of interest.)

2. Reduce Your Interest Rate

If you obtain a new loan to reduce your interest rate you will repay more than you borrowed. In addition to your interest rate, term and loan amount, how much you repay is determined by several factors. Here are the components you need to know:

Remember that interest rates only tell part of the story. The total cost of a mortgage is reflected by the interest rate, discount points, and origination charges. Use our Should I Refinance Calculator and Refinance Breakeven Calculator to determine if a refinance is a good idea for you.  This total cost is known as the annual percentage rate (APR), which is typically higher than the interest rate. The APR enables you to compare mortgages of the same dollar amount by considering their total annual cost.

Your monthly mortgage payment is typically made up of four parts:

  • Principal is the amount of money you borrowed.
  • Interest is the cost of borrowing the money.
  • Taxes are the property taxes charged by your local government. Typically we collect a portion of these taxes in every mortgage payment and hold the funds in an escrow account for tax payments made on your behalf as they become due.
  • Insurance refers to homeowners or hazard insurance that provides protection against property damage due to wind, fire or other risks. Like taxes, insurance costs are typically collected and paid from an escrow account.

Depending upon your property location, property type and loan amount, you may incur other monthly or annual expenses such as mortgage insurance, flood insurance, and homeowners association fees.

3. Pay Off Your Mortgage Sooner

A shorter repayment period can help you:

  • Pay down your mortgage debt more quickly. Repaying your loan in a shorter time period may enable you to focus on other priorities such as a child's college tuition, or saving for retirement.
  • Reduce the overall cost of interest. Although your monthly payments on a shorter term mortgage will likely be higher than on a longer term mortgage, you may also be making less interest payments over the life of the loan.

While faster repayment with a shorter-term loan does have advantages, it can also mean:

  • You may have higher monthly payments because the loan term is shorter.
  • You may not receive as much of a tax deduction. (Consult your tax advisor on the deductibility of interest.)
  • You will pay origination charges as well as closing costs for your new loan

4. Convert to a Fixed Rate

Refinancing may be an option for you to consider if your loan is adjusting to an interest rate that's higher than the current market rates.

Like many homebuyers, you may have been attracted to the low initial interest rate of an adjustable-rate mortgage (ARM). While adjustable-rate mortgages have lower initial interest rates than fixed-rate mortgages, the lower interest rate is only for a set period of time.

Is refinancing from an ARM to a fixed–rate mortgage right for you:

  • An ARM or variable interest rate can rise based on market or index rates while the interest rate of a fixed-rate mortgage does not change during the length of the loan term.
  • ARMs have an initial fixed- rate period, when rates and monthly payments are lower than fixed-rate loans.
  • When the fixed-rate period ends, the monthly payment adjusts based on the type of loan you have. Your interest rate (and monthly payment) will rise and fall based on market rate and index.

Refinancing out of an ARM to a fixed-rate mortgage may provide:

  • Stability. You may gain protection from rising interest rates and future payment increases. Fixed-rate loans provide the security of predictable monthly payments.
  • Loans options. ARC offers a variety of fixed-rate mortgage products. We make the financing process streamlined and convenient.

5. Use Equity to Take Cash Out

Refinancing can be an option if you wish to use the equity in your home to "take cash out." Many home owners opt to borrow money against their home as an alternative to consumer loan types. In most cases, because a mortgage refinance is secured by a home, the interest rate is lower, the loan amount is higher, and the term can be longer than what is common with most unsecured loans.

Some common reasons to refinance the equity in your home are:

  • Home Improvements
  • College Tuition
  • Loan Consolidation

Using equity in your home will increase your mortgage balance, potentially extending your term or increasing your monthly payment. It is important to be aware of the potential change in your interest rate as well as the costs associated with closing the mortgage.