When is the Right Time to Refinance your Home Mortgage?
The prospect of reducing your monthly mortgage payments is very appealing. Who doesn't want to save a little money every month? That being said, how do you know when the best time to refinance your home mortgage is? Many people jump headfirst into refinancing their home without considering how much they will save, and how much it will cost them. Here are some things to consider when refinancing your mortgage.
The Economy
The economy is the single most driving factor of interest rates. Recently interest rates have seen some of their lowest values in decades. Depending on the original interest rate that you bought your house for, this could be a good time to refinance your home mortgage. Generally you will want to look for a generous drop in the interest rate when you decide to refinance. This will help reduce your monthly payment.
Reduce Your Risk
Many people get lured in by the lower interest rates used by lenders to entice you to agree to an adjustable interest rate. If you think that your rate is about to rise, you should think about refinancing your home mortgage to a fixed interest rate.
Improved Credit
You can dictate a lower interest rate even if the market doesn't support it by increasing your credit score. If you bought a house a few years ago when your credit score was low, and have recently increased it to an impressive number, refinancing may knock a few percentage points off of your interest rate.
Reduce the Term of the Loan
Maybe you are looking to turn your 30yr mortgage into a 15yr. Your monthly payments will be higher, but you will be able to pay off your home sooner too. This is a good time to refinance.
Whatever the reason, the best time to refinance your home mortgage is when you can save money in the long run. This means comparing the total savings over the life of your new loan compared to the closing costs of refinancing. If you are able to save more money than you spend, refinancing your home mortgage may be right for you.
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