Should you refinance your mortgage in 2025 or wait it out? Shifting economic conditions and uncertainty about mortgage rates make the decision even harder. If the question “Should I refinance now?” feels like rolling the dice, this guide will help you make the right decision.
What is Refinancing?
Refinancing a mortgage means replacing your existing loan with a new one. Although many homeowners wait until their mortgage matures to get a new one, lower interest rates and better terms are good reasons to refinance a mortgage mid-term.
Reasons to Refinance Your Mortgage
There are several benefits to refinancing, including:
Lower Monthly Payments
If rates have dropped since you got your current loan, you may want to refinance your mortgage in 2025. Depending on how much lower new rates are, your monthly payments will be lower, and you could save thousands over the course of the new loan. Your lender or financial adviser can help you calculate if the drop in rates is enough to cover the refinancing fees.
Consolidating Debt
A great reason to refinance your mortgage in 2025 is to bring your debt under one umbrella at a lower interest rate. If you have outstanding credit card balances or other loans, or even private debt, you can
get a larger loan to replace your current mortgage. With the extra cash, you pay off the rest of your debt and just have one monthly payment. This makes sense if your other debt is at a higher rate than current new mortgages.
Changing the Terms of the Mortgage
When your financial circumstances change, you might want a new type of mortgage or different mortgage terms. Some changes to consider are:
- Term length: A shorter term will pay off your mortgage faster, while a longer term will lower your monthly payments.
- Loan type: Switching from an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage makes payments more predictable, and switching from a Fixed-Rate to an ARM makes sense if short-term rates are lower and you plan to sell before the rate adjusts upwards.
Marriage or Divorce
To add someone to a mortgage or take someone off it, refinancing your mortgage is a smart decision that protects everyone involved.
Taking Equity Out of Your Home
If you need cash for a big purchase, you might want to refinance your mortgage in 2025. You will need to have enough equity in your home for lenders to approve your new mortgage, but this is a great way to get the funds you need without taking out a separate loan at a higher rate.
Should You Refinance Your Mortgage in 2025?
Refinancing is a complex decision. Here are the key factors to consider:
Mortgage Rate Trends
Rates in 2025 have been fluctuating due to inflation pressures and global economic uncertainty. Although rates are not as low as they were during the pandemic, they have decreased from their 2024 highs.
There are numerous factors that influence mortgage rate trends, including Federal Reserve policy, housing market activity, 10-year bond yields, and market volatility. No one can predict with complete certainty when rates will change or by how much, but keep a close eye on economic news and the insights of industry experts.
How Long You Plan to Stay in Your Home
Refinancing comes with closing costs and other fees. If you plan to sell your home soon, it may not make financial sense to refinance.
Your Credit Score
A higher credit score means a better interest rate. If your credit has improved since you got your mortgage, now might be a good time to refinance. If, on the other hand, your credit score has dropped, and rates have not gone down that much, it might be better to stick with the mortgage you currently have.
Costs of Refinancing
If you refinance your mortgage in 2025, expect to pay between 3% and 6% in fees at closing. These fees cover:
- Government recording costs
- Appraisal fees
- Application and credit report fees
- Lender origination fees
- Title search services
- Survey fees, if necessary
- Attorney fees
- Underwriting fees
Some lenders have lower closing costs. There are also no-closing-fee loans, which come at a higher interest rate. It could be worthwhile to shop around for different loan products, but do the math to make sure you’re still coming out ahead.
The 1% Rule
Compare your existing mortgage rate to current rates, factoring in fees, to determine if it makes financial sense to refinance. If your rate is at least 1% higher than what you could get now, refinancing could lower your monthly payments enough to make refinancing worth it.
Your Refinancing Goals
Your goal probably isn’t the refinancing itself, but how refinancing can affect your financial health. Do you want to accelerate your equity building, reduce your monthly loan payments, minimize the interest you will pay over the life of the loan, eliminate PMI payments, or make home improvements?
The answer to “should I refinance now” begins with a careful evaluation of your short- and long-term goals. A financial planner is a great resource for weighing your options, and there are many online mortgage refinancing calculators to help with the decision.
When Refinancing Makes Sense
When you’re thinking “should I refinance now,” there’s no one answer that’s right for every homeowner. Here’s the TL: DR on whether to refinance your mortgage in 2025:
Refinance your mortgage if:
- Your current mortgage rate is significantly higher than today’s rates.
- You’ve accumulated equity in your home and want to cash some of the equity out for renovations, debt consolidation or another large expense.
- You want to pay off your home faster by getting a shorter mortgage term.
- You need to reduce monthly mortgage payments.
Hold off on refinancing if:
- Rates are still higher than your current mortgage.
- You plan to move within the next 2–3 years.
- Your credit score has dropped, which could lead to higher loan costs.
- You already have a low fixed mortgage rate.
The decision to refinance your mortgage in 2025 is a complex one, but you don’t have to make it yourself. Use an online refinancing calculator and consult with a financial planner or your lender for guidance.
