Incentives to Refinance

Finances are a common battleground between spouses, so anything you can do to improve your financial situation might also improve your marriage. The cost of home ownership is often the largest expense families face. Mortgage refinancing is a financial tool that offers several benefits to homeowners, including the potential to reduce the cost of home ownership.

Get a Lower Interest Rate

The main incentive to refinancing a mortgage is the chance to grab a lower interest rate. When you refinance a mortgage, you sell off your original mortgage to a lender who gives you a new loan with new terms. The interest rate on a refinanced mortgage can be lower than the original rate if interest rates in the economy have fallen over time, or if you have a better credit score than you did when you took out the mortgage. A lower interest rate translates to smaller monthly mortgage payments.

Extend or Shorten the Mortgage Term

Another invective to refinance a mortgage is that it lets you change the term or duration of the loan. If you have trouble making payments, extending the term can reduce the size of monthly payments and give you more breathing room in your monthly budget. On the other side of the coin, if you plenty of cash flow and want to pay off your mortgage faster, a shorter term loan can give you access to lower interest rates and make your goal easier to achieve.

Switch to a Fixed Rate

The interest rates lenders charge can be fixed or variable. A fixed rate mortgage has a static interest rate that doesn't change over time. For variable rate loans, lenders are free to adjust the interest rates. Fixed rates are usually preferable to variable rates, because variable rate loans can become more expensive over time. Refinancing gives you the opportunity to switch from an adjustable rate mortgage to a fixed rate.


Refinancing a mortgage requires paying various fees and closing costs that can cost thousands of dollars. This provides strong disincentive to refinance. It is best to refinance when the savings gained from the new interest rate outweigh the upfront costs of refinancing. It can take many years to recoup the initial cost of refinancing through savings gained from a lower interest rate, so it might be unwise to refinance if you plan to move within the next few years.

About the Author

Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.