4 Signs It's Time for a New Mortgage in the New Year

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Your mortgage is probably your largest debt, and chances are good it also comes with your highest monthly payment. Since this loan is so large and you pay it off over such a long time, it's important to make sure that you have the best possible mortgage for you.

That's not just true for those who haven't yet purchased homes. Current homeowners may be able to optimize their loan by refinancing and securing a new mortgage to pay off their old one. There are four key signs that it may be time for you to pursue this option in the new year, so be on the lookout to see if any apply to you.

1. Your interest rate is too high

Mortgage rates have repeatedly hit record lows during the COVID-19 pandemic. That has created an unprecedented opportunity for homeowners to refinance to a loan at a lower interest rate.

While you have to take closing costs into account when deciding if refinancing makes sense, many homeowners could cut their monthly payment by hundreds of dollars and could save thousands on total interest paid over the life of the loan. If you're able to drop your rate substantially by refinancing, you should take the opportunity to do so.

2. Your monthly payment is too high

Refinancing can lower your monthly payments if you reduce your interest rate. It can also reduce your payment amount if you switch to a longer repayment timeline. Say you have 21 years left before your mortgage is paid off and you refinance into a new 30-year loan. Since you're giving yourself an extra nine years to pay off the loan, your monthly payment will drop substantially -- especially if your new loan has a lower rate.

Refinancing into a loan with a longer payment timeline would mean paying interest for longer, though. In many cases, even if you drop your rate, that would mean borrowing costs are higher over the life of the loan. But if you're really struggling with cash flow, it may be worth the trade-off for you to get more wiggle room in your budget now.

3. You want to get equity out of your home

Rising home prices have helped many homeowners build more equity in their homes. If you've been paying down your mortgage over time, you may also have amassed a lot of equity.

Having so much money trapped in your home may not be a good thing if you have pressing financial needs. While you could take a home equity loan or line of credit to tap into your equity, the interest rate on these types of loans tends to be higher than the rate on your primary mortgage.

As a result, a cash-out refinance loan could be a good solution if you want to get some of the money out of your home and into your pocket for other things (such as paying off higher interest debt or improving your house). Just remember, though, that when you take a cash-out refinance loan, you're taking a big risk and putting your home on the line. Don't borrow against your home unless it's for a very important reason and you're confident you can pay back the loan.

4. You're receiving poor customer service

If your lender is making your life difficult, there's little reason to stick with them. Poor customer service could mean anything from processing payments incorrectly to not offering features you're interested in, such as biweekly mortgage payments. The bottom line is, with so many choices of mortgage lenders out there competing for your business, there's no reason for you to continue borrowing money from a lender that hasn't earned your loyalty.

If you're experiencing any of these signs that it might be time to pursue a new mortgage in the new year, check out our list of the best mortgage refinance lenders to see what low rates you might be eligible for.

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