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Should I renance?
Renancing happens when you
pay off your current mortgage
with money from a new mortgage.
Often homeowners renance to try to lower the
cost of their mortgage. For example, you might be
able to get a new mortgage with a lower interest
rate when interest rates fall. But there are usually
tradeoffs, so here are some questions to help you
think about whether renancing is a good nancial
move for you.
Renancing may remind you of what you went
through when you got your current mortgage.
You could go through many of the same steps
and could pay many of the same costs when you
renance.
Take stock of your situation
If you check any of these boxes, it might not make
sense to renance your mortgage.
£ Are you planning to move soon?
If you know you’re going to move in the next few
years, you might not have time to recoup the cost
of renancing.
£ Has the value of your home fallen?
If the market value of your home is lower now
than when you took your original mortgage, it may
be harder to nd a renancing loan that is more
favorable than your current loan. Homeowners who
have money available to pay down their loan may
nd better options for renancing.
£ Has your credit standing declined?
Your credit score affects the cost of your loan. If
your score has fallen, review the interest rate and
other terms you are offered to be sure the loan is
still a good deal.
£ Does your mortgage have a
prepayment penalty?
Check your loan documents to see if your
mortgage has a prepayment penalty. If so, you have
to pay the penalty if you renance your mortgage.
Look at the cost to renance,
and compare it to the benets
If you are ready to consider a renance, you can
start by weighing the costs of a new mortgage
against your goals for renancing. When you ask a
lender for a renance, you receive a Loan Estimate
that shows all the features of the loan, including
whether there is a prepayment penalty, as well as
the total dollar cost of the loan. This amount is the
price you pay to achieve the potential savings and
other benets shown in the illustrations on the
next pages.
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Consider renancing only if you can meet an important nancial goal
Below, you’ll see common reasons for renancing. The illustrations can help you see the general
advantages and tradeoffs of renancing, now and in the future.
1. Financial goal: To lower your interest rate and monthly payment
When you renance to lower your interest rate, you are signing up for a new loan with a new loan term,
which could be longer. That could mean a lower monthly payment, but paying more money in total.
Total principal and
interest payment
Today’s mortgage:
Fewer years of higher payments
Interest
Principal
Years
After renancing:
Lower payments — but making lower payments
for more years could mean higher total cost
Years
Tip
Talk to your lender about the length of your new loan. It is often possible
to choose a custom loan term, like 22 years instead of 30 years.
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2. Financial goal: To shorten the length of your mortgage
Through renancing, you could choose to shorten the term of your loan. This can mean paying off the loan
faster, and paying less total interest, but your monthly payment could be higher.
Total principal and
interest payment
Today’s mortgage:
More years of lower payments
Interest
Principal
After renancing:
Fewer years of higher payments could mean lower total cost
Years
Years
Tip
When you renance, your principal and interest payment may change —
but other costs of home ownership may stay the same, like property taxes
and homeowner’s insurance.
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3. Financial goal: To avoid a payment jump in an adjustable-rate mortgage
Renancing from an adjustable-rate to a xed-rate mortgage can mean a higher monthly payment, but with
more certainty in the future. Your principal and interest payments do not change with a xed-rate loan, but
can change a lot with an adjustable-rate loan.
Total principal and
interest payment
Today’s mortgage:
Adjustable-rate mortgages can start with a low monthly
payment, but this may change in the future
Interest
Principal
Years
After renancing:
Changing to a xed-rate mortgage provides more certainty
Years
About the CFPB
The Consumer Financial Protection Bureau
regulates the offering and provision of
consumer nancial products and services
under the federal consumer nancial laws,
and educates and empowers consumers to
make better informed nancial decisions.
Learn more at consumernance.gov
Connect with us
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consumernance.gov/complaint
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consumernance.gov/your-story
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9/2020