Thinking of refinancing your home?
As with most things housing and money-related, refinancing your mortgage is largely influenced by the market. And right now, the market is shifting. With interest rates projected to decline as inflation cools and the Fed hints at cuts, many military homeowners wonder if now is the right time to refinance.
It just might be. Here's what to know.
What does it mean to refinance your mortgage?
Refinancing a mortgage means replacing your current home loan with a new one that often lowers your monthly payment, reduces interest costs, accesses your home equity, or switches loan types.
In short, if you get the timing right, refinancing can help save money, pay off your home faster, or give you access to cash for life’s bigger expenses.
Let’s break down the benefits and the drawbacks of refinancing in today’s market.
5 Reasons to Refinance Your Mortgage
1. Lock in a better rate.
Mortgage rates surged in 2023 and hovered above 7% through most of 2024. But as of early 2025, they're finally inching downward. Projections from the Mortgage Bankers Association suggest that 30-year fixed rates may fall into the 6% range or even lower by late 2025.
If you're one of the military home buyers who locked in a mortgage during the recent rate hikes, you could benefit from refinancing into a lower rate soon.
2. Switch loan types.
If you started with an adjustable-rate mortgage (ARM) and your rate has climbed, refinancing to a fixed-rate loan could stabilize your monthly payments. On the flip side, if rates keep falling and you only plan to stay in your home short-term because you're anticipating PCS orders soon, you could possibly benefit from switching to an ARM to take advantage of lower initial payments.
3. Shorten your loan term.
Refinancing from a 30-year loan to a 15- or 20-year loan can save thousands in interest over the life of your mortgage. With rates trending downward, this might not mean a drastic increase in monthly payments, making it a smart long-term move.
4. Tap into home equity.
Home values have remained strong in many markets. A cash-out refinance lets you tap into your home’s equity to cover major expenses like college tuition, home renovations, or consolidating high-interest debt. Just keep in mind that this increases your loan balance and monthly payment, so it’s not a decision to take lightly.
5. Ditch PMI.
Still paying private mortgage insurance (PMI)? If your home has gained enough equity through appreciation or principal pay down, you could qualify to refinance and eliminate PMI, saving you $100–$300 per month or more.
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The Cons of Refinancing a Mortgage
While there are clear upsides, refinancing isn’t right for everyone.
1. It’s not free.
Expect to pay between 2%–4% of your loan amount in closing costs. On a $300,000 mortgage, that’s $6,000–$12,000. If you’re not planning to stay in your home long term, you may not recoup those costs.
2. It can be risky.
If your home has lost value, your refinance application may be denied or come with less favorable terms, like new PMI requirements. And if your credit score has dipped or your debt has increased, you may not qualify for better rates.
3. It doesn't help in the short term.
Refinancing is a long game. If you’re moving soon, the upfront costs probably outweigh the benefits. However, if you plan to keep the home as a rental investment, refinancing could still be a smart choice on your way to life as a military landlord.
4. It can limit flexibility.
Switching to a shorter loan term will save on interest, but it increases your monthly commitment. Unexpected events like military separation, medical costs, or relocation-related BAH changes will leave you stuck with higher payments.
One workaround: if there's no penalty, make extra principal payments on your existing loan instead of refinancing. You’ll pay the loan off faster without committing to a higher monthly payment, allowing you the flexibility to pay the minimum during months of increased spending, like funding a PCS move. Verify that your lender doesn’t penalize prepayments.
Is refinancing right for you?
That’s the big question. The right move depends on your current mortgage, personal finances, and long-term goals.
Start with these questions:
- Is your current interest rate significantly higher than today’s?
- Can you afford the upfront costs?
- How long do you plan to keep the home?
- Do you want to shorten your loan term or tap into equity?
With this guide, a talk with your spouse or partner, and advice from a trusted lender (including options for VA refinancing loans), you’ll be better prepared to decide if refinancing makes sense for you.
