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Should You Refinance Your Mortgage in 2025?

Arthur March Blog

Many homeowners ponder this question from time to time as market conditions change and the potential to lower their mortgage rate arises. The correct answer depends on a number of variables. In this post we’ll examine six of the leading ones plus explore the advantages of refinancing a mortgage and a few top home refinance options. Read on to learn more about whether mortgage refinancing is a move you should consider in the near future, or if it might be a better idea to wait.

6 Leading Factors To Consider When Contemplating Mortgage Refinancing

Personal circumstances and market conditions will certainly come into play when you’re deciding whether to refinance your mortgage, but you should also consider these six top factors before you make a decision:

1. Current Interest Rates vs. the Rate You’re Paying

If you can refinance at an interest rate significantly lower than the one you’re currently paying on your mortgage loan, doing so offers you an opportunity to save money, especially over the long haul. To help determine whether refinancing is worth the time, effort and fees, do the calculations to find out how much you stand to save on your mortgage payment each month.

2. How Long It Will Take To Break Even

If you decide to refinance your mortgage, you’ll be required to pay closing costs again, which can include attorney fees, appraisal fees and title insurance fees. To help you decide whether refinancing is a good idea, ask your lender for the total closing costs. Then, divide this amount by the figure you calculated above for monthly savings. This will show you how many months it will take to break even and start realizing your monthly savings.

3. The Time Remaining on Your Loan Term

Refinancing your mortgage also resets your mortgage term. If you’ve nearly reached the finish line with your current loan payoff, refinancing may not make the most sense. But if the new, lower interest rates and the equity you have in your home enable you to shorten your loan term the move might be worth considering, especially if it still lowers your monthly mortgage payment. An example would be to opt for a 10-year term on the new loan when you had 15 years left on the old one.

4. Your Current Credit Score

In most cases, the higher your credit score, the lower the interest rate your lender can offer you on your mortgage loan. If your current credit score is less than ideal, you may want to hold off on refinancing so you can spend some time taking steps to improve it.

5. Your Reasons for Refinancing

The opportunity to secure a lower interest rate — especially a substantially lower one — is a solid reason to consider refinancing your mortgage. But it’s not the only rationale for contemplating the move. If you can leverage some of the additional advantages of refinancing a mortgage, refinancing might be even more appealing. Some of those advantages include better loan terms, a shortened debt payoff time, access to funds from your home’s equity and the opportunity to trade an adjustable-rate mortgage for a fixed-rate mortgage.

6. Your Existing Debt Load

When lenders evaluate the risk involved in providing you a loan, your debt-to-income ratio is a major factor in the decision-making process — even when refinancing. Paying down some of your existing debt before applying to refinance your mortgage will lower your debt-to-income ratio and make it easier for lenders to decide you can comfortably cover both the mortgage loan and your other outstanding debts.

The Basics of Mortgage Refinancing

When you choose to refinance your mortgage, you’re opting to take out an all-new loan, and then using at least some of the newly borrowed funds to pay off the original mortgage loan. Especially when market conditions are favorable, the advantages of refinancing a mortgage can include:

  • Better terms, such as a lower monthly mortgage payment or a reduced timeframe to debt payoff
  • A lower interest rate — especially attractive if the rate has dropped significantly since you took out the original mortgage loan
  • A (sometimes substantial) reduction in the total amount of interest paid over the lifetime of the loan
  • The chance for borrowers with an adjustable-rate mortgage to lock in a fixed interest rate
  • An opportunity to tap into your home’s equity to secure funds for home improvements, home repairs or a range of other purposes, such as paying off high-interest debt or covering sizable expenses
  • A path to eliminating the need to pay private mortgage insurance (PMI), typically required when a borrower’s home equity is less than 20% of the home’s value

On the other hand, refinancing your mortgage can also have downsides, especially when the borrower’s situation and/or market conditions aren’t as favorable. Some of the potential drawbacks include up-front fees such as appraisal costs, closing fees and application charges, the risk of overborrowing, and in some cases, an extended loan term.

Common Types of Refinance Loans

Numerous types of refinance loans are available in the marketplace, with options often varying from lender to lender. These are some of the most common types of home refinance options:

  • Rate-and-term refinancing, which borrowers often use to adjust their loan’s interest rate and/or term to reduce their monthly payment amount or pay off their mortgage more quickly
  • Cash-out refinancing, which allows homeowners to borrow money against the equity they’ve built up in their home, typically to pay off high-interest loans and consolidate their debt or to cover large expenses such as home renovations
  • Streamline refinancing, which is typically used to speed up and simplify the refinance process for borrowers with an existing Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loan

Make Banking — and Home Buying — Easy With Arthur State Bank

Proudly serving South Carolina since 1933, Arthur State Bank offers accounts and services to meet a variety of financial needs. To help you achieve all your financial goals, the bank offers in-person service as well as a range of convenient digital solutions. To learn how Arthur State Bank can help you with banking needs ranging from checking and savings to retirement accounts, mortgages, other personal loans and more, visit arthurstatebank.com.

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AnnualCreditReport.com is the only source for free credit reports authorized by the federal government. Every 12 months, you can get a free copy of your credit report from each agency.

Your credit report has your credit history for all of your credit accounts as well as any credit inquiries and public record court information such as collections. In addition, the report provides personally identifiable information such as your name, address, and employment.

Be sure to carefully review all three reports to identify any problem areas that you may need to clean up prior to applying for a mortgage. If there is any incorrect information, follow the reporting agency’s rules to correct it or add a notation to the report to explain the situation.

Your FICO Score is a score combines data from several areas include payment history, the amount owed, length of credit history, new accounts. Many lenders use this score as a guide. This score is not provided as part of the free annual credit report.

Learn more about how your credit score impacts your ability to secure a loan.

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Couple looking over finances

Primary considerations for setting your housing budget require an assessment of your income, debt and current savings for the down payment on the home. The following are generally recommended guidelines; however, you should meet with an Arthur State Bank lender to get personalized mortgage information.

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Couple meeting with lender

The pre-qualification/pre-approval letter is included with any offer you make on a house to inform the seller that you have met with a mortgage lender and you are prepared to make an offer. The letter states that based on certain assumptions, the bank is prepared to lend you up to a specified amount of money for a home mortgage.

When choosing a loan officer, we recommend going local to work with someone who understands your community’s real estate market. This blog on first-time home purchases includes questions to ask your lender that may be helpful when preparing for your meeting.

Helpful Resources:

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Realtor shaking hands with a client

When a house is sold, the seller typically pays real estate commission to both the listing agent and the selling agent. It is extremely beneficial for the buyer to use their own real estate agent. Loan officers can often recommend selling agents in the area; ask your officer about realtor referrals when discussing your loan.

A good realtor will know the local market and can help you find an ideal home based on your budget, location and desired features. During your search, understand that you will most likely need to compromise on some items, so it’s important to identify your critical needs versus your wants.

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Couple searching online for a home

Additionally, when you start with the house search and work backwards, homes can often go off the market while you’re completing steps 1-4. While browsing homes immediately can be tempting, we recommend following these steps in order so that, once you find your dream home, you’ll be well-positioned to take action immediately.

When you find the home you want and you think you are ready to put an offer on it, you will want to make sure you have all the information you need to make a solid offer.

  • Evaluate the neighborhood.
  • Drive by the house at different times of the day.
  • Examine how other houses in the neighborhood are maintained.
  • Consider any potential traffic or other disruptive noise.
  • Is there ample parking for you and visitors?
  • Read the details in any Homeowner Association agreements (HOA fees and rules).

Make sure to do a preliminary check of house details:

  • Check the water:
  • Does it have good pressure?
  • How long does it take to get the water hot?
  • Is it well water or city water?
  • Turn light switches on and off.
  • Open and close doors and windows to make sure they work properly.
  • Review previous utility bill expenses.
  • Consider the property tax bill.

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Family meeting with realtor at new house

When writing an offer contract, be sure to pay attention to all of the details.

Offer Price:

Your agent should do a market analysis that pulls data on recently sold comparable houses. The best comparisons will come from the same neighborhood.

If you are asking for the seller to pay some of the closing costs, remember that this cost plus the sales commission determines the net amount you are offering the seller for the house.

Work with your agent on your negotiation strategy. There are many things to consider, such as how badly you want this particular house, whether it is a buyer’s or seller’s market and an assessment of the seller’s motivation to get the property sold.

There isn’t one best strategy.

Be sure to document in writing everything you want included with the house, such as appliances, etc. Your agent should guide you through the contract step-by-step.

Contingencies:

  • Home inspection.
  • Mortgage.
  • Final walk through (24 hours prior to closing).

Proposed closing date. Typically, this is 30-45 days from an accepted offer.

A good-faith deposit is required for the offer. This is typically between 1-10% of the purchase price of the house. The deposit is kept in escrow until closing and the money is applied to the purchase price of the house at closing. If the house does not close due to one of the contingency clauses, the buyer receives their money back. However, if the buyer decides not to close on the property, the seller may get the deposit money.

Attach your pre-approval letter to the offer.

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Two people in professional meeting

The clock starts ticking for everything documented in the contract, including mortgage application, inspections and closing date.

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Woman advising other woman on mortgage application

You will need to decide which mortgage to select prior to the application.

Plan for the following potential fees:

  • Application fee (many banks and mortgage companies charge an application fee; however, there is not an application fee at Arthur State Bank).
  • Credit check.
  • Appraisal (may be paid at closing).
  • Loan origination fee (paid at closing).

Once you have approval for your loan, make sure you don’t change anything that will impact the status of your mortgage. Banks do a final check on credit and jobs just prior to closing, so now is not the time to change jobs or make another purchase on credit such as a car or furniture.

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Home inspector going over findings with home owner

Depending on the size of the house, an inspection can cost on average between $300 to $1000.

Many real estate contracts specify how problems uncovered in the inspection will be resolved, up to a certain dollar amount. Should necessary repairs exceed that amount, the buyer has the option to cancel the contract without penalty and receive their deposit money back. Another option is for the buyer and seller to renegotiate who will pay for additional repairs.

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Woman happily holding keys to her new home
  • Homeowner’s insurance is required by the lender prior to closing on the loan.
  • Turn on utilities in your name, effective the closing date.
  • Change your address with the U.S. Postal Service.
    • Make moving arrangements.

Three days prior to closing:

  • You should receive your final Closing Disclosure from the closing agency. The final Closing Disclosure shows a column for the seller and a column for the buyer. All closing charges and credits for both the seller and the buyer are documented in the closing statement.
  • Review the closing statement for accuracy prior to coming to closing.
  • The final amount in the buyer’s column shows you the amount of money you need to pay at closing.

The closing office will provide specific payment instructions. Closing funds have become recent targets for cybercriminals. If you are asked to use a wire transfer, call the office and ask to speak to someone you have been working with to double-check the instructions.

Closing day:

In South Carolina, the closing will usually take place at the attorney’s office. Everyone signing for the mortgage must be present to sign the closing paperwork. Make sure you bring the following:

  • Cashier’s check or proof of payment for wire transfer.
  • Driver’s license.
  • Checkbook, just in case there are any additional items that were not on the closing statement.

Be sure to understand this information:

  • How and when you will pay:
  • Your mortgage.
  • Your property taxes.
  • Your homeowner’s insurance.
  • Any HOA dues.
  • Who to call with any questions.

The best practice is to go through the homebuyer’s roadmap in this sequence. However, if you jumped ahead early in your journey, just circle back to address the steps you missed.

Arthur State Bank’s loan officers are closely tapped into local real estate markets and experts at helping clients get what they need on terms that work for them. We also offer mortgage specials for first-time homebuyers.

To start planning your journey to your dream home, try out our mortgage calculator. If you’re ready to talk to a loan officer, contact Arthur State Bank to request personalized mortgage information today. Don’t forget to ask about our first-time homebuyer offer.

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