Reviewing and adjusting your plan yearly

They save you money by reducing the principal balance of your loan faster. Since interest is calculated on the outstanding principal, a lower principal means you pay less interest over the life of the loan, allowing you to build equity and potentially pay off your mortgage years earlier.

After you receive the Loan Estimate, the ball is in your court. You need to actively decide whether you wish to proceed with the loan. You must formally indicate your intent to proceed (often in writing) to the lender, which will then begin the process of verifying your information, ordering an appraisal, and moving toward final approval.

The main risk is that you are putting your home up as collateral. If you cannot make the new, potentially higher, mortgage payments, you could face foreclosure. You are also resetting the clock on your mortgage term, which could mean paying more interest over the long term, and you are reducing the equity you’ve built in your home.

When inflation rises, central banks often raise interest rates to combat it. If you have a fixed-rate mortgage, your rate and payment are locked in and will not increase, even if new mortgage rates soar. You are effectively shielded from the impact of rising interest rates in the broader economy.