Homeowners: Prepare for Home Refinancing This Year
Most of the time, refinancing a home can be a strong financial move, but 2025 is unlike any other year that has come before it. With the government in a state of upheaval and the economy facing an unsure future, a lot of homeowners are no doubt on the fence about refinancing their mortgages this year.
Making things even more challenging for refinance prospects is that in 2025 we are already seeing shifting market conditions, new lending regulations, and changing interest rates. But despite all the head scratching, many homeowners can still find value in refinancing their homes, even now in 2025.
When all is said and done, here’s what you need to know to help ensure a successful home refinance this year.
Ask Yourself – Why Do I Want to Refinance?
Before you get deep into the refinance process, it’s important that you define your financial goals and understand your reasons for refinancing. For instance, homeowners typically refinance for the following reasons:
- Lower Interest Rates: A reduced interest rate can lead to significant savings over the life of the loan, especially when the new rate is at least 1% lower than the homeowner’s current rate.
- Lower Monthly Payments: Extending the loan term can reduce monthly payments, which will naturally improve the homeowner’s cash flow.
- Shortening the Loan Term: Refinancing from a 30-year mortgage to a 15-year one can help a homeowner pay off their home faster.
- Cash-Out Refinancing: Homeowners often choose this type of refinance to access their home equity for renovations, debt consolidation, or other financial needs.
- Switching Loan Types: Moving from an adjustable-rate mortgage (ARM) to a fixed-rate loan can provide better long-term stability.
Knowing your primary reason for refinancing is important because this information will not only help you choose the best loan product and terms for your needs, but many lenders often require this information also before making their approval decisions.
Stay on Top of Interest Rate Trends in 2025
Interest rates fluctuate based on economic conditions, Federal Reserve policies, and inflation trends. As of 2025, experts are already anticipating some rate volatility, so this makes it crucial to monitor mortgage rates before deciding when to refinance.
A good rule of thumb is that refinancing is worth considering if you can secure an interest rate that is at least 0.5% to 1% lower than your current mortgage rate.
Review Your Credit and Improve It if Needed
Many homeowners who are looking into refinancing are often surprised to learn that, yes, their credit score still plays a significant role in determining their approval odds as well as their interest rate. Therefore, before applying, you will want to obtain a copy of your credit report and check for anything that can impact your approval odds, such as:
- Outstanding Debts: Commit to paying these debts down to help improve your debt-to-income ratio.
- Errors or Inaccuracies: These are problems that should be disputed and corrected. Having them removed will improve your credit standing.
- Credit Utilization Levels: Ideally, your credit utilization ratio should be below 30% of your available credit limit. If it is higher, then you need to pay your debt down to secure the lowest possible interest rate.
If your goal is to acquire the best refinance rates, then you will need to aim for a credit score of 700 or higher. If your score is lower, then take the time necessary to improve it before refinancing.
Stay tuned for part 2 of this article next month…
