One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance.

How do you determine if refinancing mortgage is right for you?

If your mortgage has a higher interest rate compared to ones in the current market, then refinancing could be a smart financial move if it lowers your interest rate or shortens your payment schedule. If you can find a loan that offers a drop of 1–2% in its interest rate, you should think about it.

What should my mortgage rate be to refinance?

Homeowners who can lower their mortgage rate by 1 percent or more are generally in a great position to refinance. But what if you can only lower your rate by 0.5 percent — or even 0.25 percent?

Do you have to qualify for refinancing your home loan?

Even if a refinance makes sense in your situation, you’ll still need to qualify. And just because you have a home and are making timely payments does not mean you’ll be able to refinance your loan. Your ability to refinance depends on several factors, especially:

What happens to your credit when you refinance your mortgage?

Many consumers who refinance to consolidate debt build up new credit card balances that may be hard to repay. Homeowners who refinance can wind up paying more over time because of fees and closing costs, a longer loan term, or a higher interest rate that is tied to a “no-cost” mortgage.

Do you have to meet 90% to Refi your home?

You should if you are looking to refi your home. The reason is that some rules are applied differently depending on the type of loan you are refinancing. According to my mortgage broker at Wells Fargo, super conforming refinances must meet the 90% rule noted above, while conforming loans do not.