When Is the Right Time to Refinance Your Home?
It seems like experts are constantly making predictions about the housing market: the momentum in the housing market might be changing, the market keeps getting worse, and, yes, the market is even showing improvement. All the arguments have valid points, because the truth is, it’s difficult to know what the housing market will do. This makes it hard for homeowners to know what to do, particularly if they are considering selling. Should buyers sit on their homes for a while, sell immediately, or consider refinancing? Refinancing for a new loan with a different interest rate can be a great idea, but it isn’t always the right time. Plus, it can be difficult to predict when you will get the best interest rate.
Average fixed mortgage rates dropped this week, to 4.27 percent for a 30-year loan. Still, rates are generally higher than they were a year ago. It may be a good time to refinance as far as interest rates go, but deciding whether this is the right time to refinance will depend on more than just interest rates.
People who refinance too often face closing fees, and unless you wait a certain amount of time (depending on your mortgage and interest rate) between refinancing, you actually won’t be saving money. Refinancing isn’t necessarily a good idea even if you do it once, especially if you plan to sell your house soon. Different lenders have different fees, but common ones include an application fee, escrow fee, title fee, appraisal fee, points for your mortgage loan, a loan origination fee, and possibly other fees, as well. If you calculate how much you will save with a lower interest rate or longer/shorter loan length and you plan to move before you will recoup the costs, then this is not the time to refinance. Try calculating how long it will take you to break even.
Once you know whether it would actually benefit you to refinance, you need to determine if you are even eligible to refinance. You will go through a processes that’s similar to when you originally took out your mortgage loan. Your lender will look at your income and assets, debt, how much your property is worth, your credit score, and how much you need to borrow.
Depending on your credit score, you might be able to get a lower rate for your loan, but if you haven’t been paying your mortgage on time regularly or if you have a lot of outstanding debt, don’t assume you will be eligible for refinancing. If you are, you actually might have to pay a higher interest rate. In addition, if the market in your area isn’t strong, you might actually owe more on your house than you think you do, which will affect whether you can get a new loan.
If you determine that refinancing is worth it, then go ahead and shop around. If you have multiple loans (for example, a mortgage loan and a home equity loan), and you plan to stay in your house for a long time, applying for a new loan might be a smart idea. In addition, you really should consider refinancing if you have an adjustable rate mortgage, but you will still need to consider the same factors (how long you will stay in your home, interest rates, fees, etc.).
Look at multiple lenders if you really do want to refinance. Don’t assume you have to refinance with your same bank or lender just because they determine that you are eligible. You will find the best deal by looking around and comparing rates (and don’t forget to include the refinancing charges in your comparison). Have everything written down for your records so that any offers or promises you receive are in writing.
Calculating how long it will take you to break even, researching refinancing fees, and determining the best interest rate you can achieve will help you determine for sure if this is the best time for you to refinance, or if you should wait until later.