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The Top 5 Reasons To Refinance Your Mortgage, According To Dave Ramsey

Owning a home — and paying it off as quickly as possible — is central to Dave Ramsey’s financial philosophy.

After creating two tiers of emergency savings and beginning to save for both your retirementand your children’s college education, the personal finance expert wants you to pay off your home as soon as possible by “attacking” your mortgage — ideally in 10 years or less.

In fact, paying off your home early is Step #6 in Ramsey’s “Baby Steps,” a structured financial blueprint that helps people get out of debt and build lasting wealth.

Ramsey has amassed a massive audience, including 6.5 million followers on Instagram, 3.3 million on TikTok, and nearly 1 million listeners on Spotify, who tune in weekly to hear his common-sense advice, often dished out with a side of tough love.

What are Dave Ramsey’s top 5 reasons to refinance your mortgage?

Ramsey doesn’t mince words when it comes to refinancing. While many homeowners think they should refinance their mortgage whenever interest rates fall, Ramsey believes you should be more selective than that.

In fact, Ramsey cautions that refinancing can actually keep you in debt longer and cost you more money over the long haul. And so, to avoid that, he wants you to make sure that this decision will strengthen your overall financial position.

Here are the top 5 situations when Ramsey believes refinancing makes sense:

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There’s no such thing as a “forever home.” Only wise decisions for the season you’re in. Don’t let emotion push you to overspend. Build a life you can actually afford and let your dreams evolve with you. @daveramsey @jadewarshaw
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1. When it saves you money

This may sound like a no-brainer, but just because interest rates go down doesn’t automatically mean you’ll come out ahead by refinancing, and that’s due to the fact that closing costs are so expensive.

According to Bankrate, the typical closing cost for a mortgage refinance ranges from 2%–6% of the new loan amount. That means, if you were refinancing a $300,000 mortgage, it would cost you between $6,000 and $18,000 in upfront fees.

“You should only refinance your mortgage if it'll give you a lower interest rate and save you more money than it costs you,” Ramsey says. He wants you to “do the math” and figure out how much you’ll save by refinancing and what your closing costs will be.

If you can break even in four years or less, then Ramsey believes refinancing is worth the expense — and the hassle.

2. If you can shorten your loan term

Ramsey often waxes poetic about the benefits of a 15-year mortgage over a 30-year one. While the payments will obviously be higher, shorter-term mortgages usually come with lower interest rates, which dramatically reduce the amount of interest paid over the life of the loan.

And because the loan duration is shorter, homeowners are able to build equity faster and become debt-free sooner — and that’s Ramsey’s ultimate goal.

Ramsey notes that homeowners might not even need to refinance their mortgage in order to pay it off in 15 years. They might achieve the same results simply by making extra payments on their existing loan, saving them even more money by avoiding the closing costs on a new loan.

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The way interest rates have adjusted lately, it would be wise to keep this info in your back pocket! @daveramsey #interestrates #moneysavingtips #refinance #moneytok #finance
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3. If you can eliminate private mortgage insurance (PMI)

Private mortgage insurance (PMI) is an extra charge homebuyers pay when they can’t put down 20% of the home’s cost — essentially, it’s “insurance” for the lender, since it protects them in case a homebuyer defaults.

The typical cost of PMI ranges from 0.30% to 1.15% of your total loan amount, which, for a $300,000 loan, would be $115 to $375 per month.

“Getting rid of PMI is a great goal,” states Ramsey Solutions, and you might not even need to refinance to get this done. Ramsey suggests making extra payments on your mortgage until the loan balance is less than 80%; then, contact your lender to see if they will remove the PMI. “You may have to pay for an appraisal, but you’d have to do that anyway if you refinanced,” he adds.

4. If you plan to live in your home for a long time

“Time and consistency. That’s the key,” Ramsey says, and nowhere is that truer than with homebuying.

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Refinancing offers the most upside to homeowners who expect to stay put long term, because the longer you remain in your home after refinancing, the more likely you are to recoup your closing costs and reap the rewards of your decision.

Before signing any paperwork, homeowners should calculate how long it will take them to reach the break-even point, and if they expect to move within a few years, reconsider refinancing altogether.

5. If you have an adjustable-rate mortgage (ARM)

Using his signature humor, Ramsey calls adjustable-rate mortgages a “lousy type of mortgage [you] never should’ve used in the first place.”

That’s because ARMs start off with low introductory rates, but after a certain period of time and/or in the event interest rates rise, monthly payments can shoot up exponentially higher, leaving many homeowners underwater.

Ramsey recommends that homeowners with adjustable-rate mortgages refinance into a fixed-rate mortgage, which will give them much more stability and budgeting certainty over the life of their loan. He even recommends a lender to help them do so.

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