When is the best time to refinance your mortgage?
Refinancing a home can be tricky as our economy is ever-changing. Many homeowners struggle to find answers to their questions, regarding when, where, how, and why they should refinance.
For many, refinancing has proven to be extremely beneficial and a financially intelligent decision. Refinancing allows homeowners to replace their existing mortgage loan with a new one. In many cases, this allows a lower interest rate and the ability to pay off the loan sooner.
Ultimately there is no “perfect” point in time to refinance a home. Many factors should play into the decision. Your budget, goals as a homeowner, economic stability, and current financial state affect the potential outcome of a refinancing. One of the most important steps a homeowner should take is comparing multiple mortgage lending options.
Some goals and points of focus to think about while starting the refinancing process:
- What is the breakeven timeline on the new interest rate vs. the closing costs? ‘Experts’ in the past have suggested refinancing if homeowners are able to reduce their interest rate by 1% or more. But, there are often rate choices with little to no net cost (lender credit that offsets some/all costs), which means the savings are immediate. A loan officer should be comparing all available interest rate/cost options against your current rate to determine savings and timing of refinancing
- How much cash do you need? If you are looking to make a significant investment into your current home, perhaps $100,000 or more, a cash-out refinance may be the right option. Mortgage loans tend to offer lower interest rates than other products would, which could save you money in the long run. For smaller amounts of cash, depending on the current interest rate of the existing mortgage, a Home Equity Line of Credit may be the better option for cash flow assistance.
- Consider the normal Ups and Downs of the interest rate market. If you are purchasing a home in an environment of higher-than-average rates, working with a mortgage broker who will actively watch for opportunity to improve things later is essential. You may not be able to improve the price paid for the home, but there may be numerous opportunities to improve the interest rate on the amount financed.