When Is The Right Time to Refinance?
If you have an adjustable rate mortgage and the rates are bout to reset to much higher rates, or if you find that current mortgage rates out there are lower than what you are paying now, you may want to consider home refinancing. But knowing when the right time is to refinance can be tricky. It’s very important that you look at the long term consequences versus the short term. Although in most cases, refinancing will make your monthly mortgage payment lower, it might cost you more in the long run over the life of the loan.
First and foremost, it’s important to remember that in most instances, refinanced mortgages
also incur closing costs, much like a first mortgage. Find out what kind of closing costs you may be looking at upfront to help determine if the deal is even worth it. On the other hand, many mortgage lenders offer a no closing cost loan for those looking to refinance, so it’s very important to shop around. Another factor to consider when planning to refinance
is the amount of equity you have already built in your home. Sometimes it can be difficult to refinance if you do not have sufficient equity built up, or you have not had a long standing history with your current mortgage company. Find out what kind of requirements are needed beforehand. Another factor that many people overlook is their credit scores. Most lenders require good FICO scores before they will allow any kind of refinancing. Be sure to pull a copy of your most recent credit report before applying, so you can foresee any problems that might occur before your lender does.
It’s a good idea to go over some numbers side by side and weigh the pros and cons of mortgage refinancing. Perhaps the current rates are about a point or more lower that what you are currently paying. Do the math and find out just how much you will be saving each month or yearly, and then decide if it is worth it. For example, if you find you are saving $80 per month in mortgage costs, which is a savings of about $960 per year. If your closing costs are $4,000, then you really are not seeing those savings being passed onto you since the closing costs must be paid upfront. On the other hand, if you can find a low or no fee refinancing mortgage loan, then it is wise to try to refinance since you will add more money to your budget. Another factor to consider is the current housing market in your neighborhood. If you refinance, you may find that you could end up owing more on your home than it is worth, which is not worth the effort since you’ll lose money when it comes time to sell. The best thing to do when considering a refinance on your mortgage is to consult with your local bank or mortgage lenders and sit down with an advisor who can take a look at your total financial picture before you make a final and important decision.