Mortgage interest rates hit historic lows last year, according to the federal mortgage company Freddie Mac. While mortgage rates are expected to go up during the next few years, you can still reap the benefits of refinancing your mortgage and save thousands of dollars.

What does refinancing my mortgage mean?

When you refinance your mortgage, you are getting a new home loan to pay off your old one. By taking out a new loan, you could get a lower interest rate, a lower monthly payment, or change the length of the loan. You may also choose to change from an adjustable-rate mortgage to a fixed-rate one for a more consistent payment schedule.

How does mortgage refinancing work?

Just like with your first mortgage, you should look around at multiple companies and compare their offers to the terms of your current loan. Make sure that you meet the new lender’s requirements before you apply. You will also need to get an appraisal on your home like you did the first time you bought it.

Also similar to your first loan, you will have to pay closing costs on the new mortgage. Make sure to factor those costs in when comparing your first mortgage to a possible refinance. The closing costs might outweigh any benefits you get from refinancing.

How refinancing can save you money

Say you took out a 30-year mortgage with a 3.5 percent interest rate. If you happen to be earning more money now than when you originally took out the loan, you may choose to switch to a 15-year loan and pay off the debt faster. Paying it off in a shorter amount of time would save you years of interest payments. If you have a higher credit score, you may also be able to get better terms for another mortgage.

Maybe you got your first mortgage with a smaller than usual down payment and had to take out private mortgage insurance (PMI). Refinancing could help you eliminate the need for PMI and save all the money that would normally go toward the insurance.

Sites like Lower My Bills can show you how refinancing would impact your monthly payments.

What is a cash-out refinance?

When you start paying back your mortgage, you begin building what is called equity. If you only owe $100,000 on a $250,000 loan, that means you have built up $150,000 worth of equity. You can also gain equity by your home increasing in value.

A cash-out refinance allows you to take out a bigger mortgage than your equity and keep the cost difference. So in the example from before, if you owe $100,000 on your mortgage, you can refinance to a $120,000 loan. You can then keep the extra $20,000. You usually won’t get the money from your cash-out refinance until a few days after closing.

With the money you get from a cash-out refinance, you can choose to pay off high-interest debt, invest for retirement, or renovate your home.

Should I refinance my mortgage?

Refinancing may still be a viable option for you in 2022, even though interest rates continue to rise. It is a great way to help you take control of your financial future and make your money work in the way that will best support your goals.