When to Refinance Your Mortgage

Refinancing has the potential to turn out to be one of the best financial decisions you have ever made if it shortens the term of your loan, reduces your mortgage payment, or assists you in building more equity in a quicker fashion. Refinancing can also help to get your debt under control when managed correctly. With all of the benefits that refinancing has to offer, it makes sense to use it as a valuable tool.

What many people don’t consider carefully is when they should refinance. Just because mortgage rates are low at a specific time doesn’t mean that it is a good idea for every homeowner. You should first think about your reasons for refinancing. After you have clarified the reasons, the next thing you need to consider is if the timing and circumstances are right. While there is no “perfect” time to refinance, there are better times than others. One of the most important things to be sure of is whether or not you plan on remaining in the house for many years to come. Otherwise, refinancing doesn’t make sense.

Consider these situations that make refinancing a good idea now: 

Your credit score has improved. Your current mortgage rate was determined by many factors, including your credit score at the time. It can be a great idea to refinance if your current credit score has improved a great deal. Credit scores that were considered to be average many years ago may be regarded as high now. This means that you can get a better rate. It is wise to keep track of your credit score closely while making your decision to refinance.

Interest rates are low. Naturally, this is one of the most predominant reasons to refinance your mortgage. Many lenders agree that a savings of 1% is incentive enough to refinance. Lowering your interest rate can help you to save money, build equity in your home, and decrease your monthly mortgage payment. Keep in mind that refinancing multiple times simply to get a lower mortgage rate may lower your overall financial benefit because you will be paying multiple closing costs. The last thing you want to do is leave a trail of closing costs behind you with every refinance. 

You want to change your adjustable-rate mortgage to a fixed-rate. When your ARM rate increases and is higher than a fixed-rate mortgage, it makes sense to convert in order to lower your interest rate and remove the possibility of an interest rate hike in the future.

You are able to pay more every month. If you don’t have a strong need to lower your monthly payment, you can refinance to a loan with a shorter term. Yes, you will pay more every month, but you will also own your home a lot sooner and pay less interest overall.

You need to cover a big expense. Paying for your children’s college or remodeling your home may be reasons to refinance, although this is not highly recommended for most homeowners. Before you add years to your mortgage to pay for these expenses, make sure that the reasons justify refinancing.

Remember that a smart homeowner is always looking for ways to reduce debt, build equity, save money and eliminate their monthly mortgage payment. Considergetting a free home valuation report from Neighborhood IQ to find out yourhome’s worth to aid you in the decision of whether or not to refinance, andwhen.