There are countless possible reasons that a mortgage borrower or loan officer can come up with to get you to refinance your mortgage with them. In many instances, deciding to refinance a mortgage without making serious deliberation leads to considerable losses, or leaves you in despair when the real need to refinance arises. This can be prevented if you would first wait for circumstances to turn to your favor before consenting to a refinance proposal. In other words, you can enjoy the full benefits of refinancing when the timing is right.
1. When the Interest Rate is Favorable
You may have obtained a fixed-rate loan at the time the interest rates were high. You can reduce your monthly payments by getting a new loan at a lower rate of interest. Remember the 2 percent rule though; wait until the interest rate is at least 2 percent lower.
Interest rates fluctuate. Due to the many factors that contribute to its rise and fall, knowing what will happen next is difficult to foretell. If you have an adjustable-rate mortgage, refinancing when a fixed rate loan becomes available can be a better option if you want to avoid any risk of rates rising in the future.
2. When the Funds are Low
If you plan to sell the home, refinancing while the rates are low can add to its resale value. You may also refinance when you need to raise money for a valid purpose. Compared to other types of consumer loans, a mortgage is less expensive and has more auspicious interest rate and repayment term.
You may also have spent a fortune in rebuilding your home. A major improvement should increase its value and allow for a larger loan. Refinancing is one good tactic to cover the cost incurred in improving your home.
3. When the Expected Return is Greater than the Cost
Refinancing mortgages are not free. The closing cost and application fee are worth several hundred dollars, and they have to be paid upfront or as part of the monthly repayments. Lenders use these to gather and evaluate your credit report, appraise the value of your property, process the application, and form part of their takings.
Make sure that the benefits you will reap out of refinancing are greater than its cost. Calculate the amount that you can earn or save by refinancing a mortgage, and determine how long it will take before it offset the expenses incurred. If it is not worth it, then you may have to pass and wait for the right time to come.
As a mortgage borrower, you have the power to change the terms of your loan as conditions change. Knowing the right time to refinance a mortgage allows for higher savings. A loan approval is only a matter of days, but when taken at the wrong time may have adverse consequences that you will endure way longer. Timing is everything; the same goes with refinancing a mortgage.