When is it Time to Refinance Your Home?
Refinancing your mortgage can help you in many ways, to help you out we are offering you a way to assess the right time to refinance your home. Paying off your existing loan and replacing it with a new mortgage plan can help you obtain a lower interest rate, shorten your mortgage deadline, and even help you find a better deal.
While it may sound spectacular, but you should know that refinancing your home is not an easy undertaking. It can easily cost between 3% to 7% of your loan’s principal and requires an appraisal, application fees, and title search. This is why it’s best to know that you are considering refinancing your home at the right time.
The Right Time to Refinance Your Home
One of the most common factors that lead to the thought of refinancing your home is when you notice that your current mortgage rate is lower than your loan rate. While that may be a good sign, it is not enough to move forward. Other things to consider are:
- When looking to pay off your loan in a shorter period of time. This generally happens when you get a raise in pay, or are in a more financially stable position than before.
- You are looking for a way to get a little bit of your home equity with the help of cash-out refinancing.
- You have successfully achieved enough equity to refinance to get a mortgage insurance-free loan.
You may find someone who feels that a good rule of the thumb is that if you are getting at least 1% less mortgage rates than your current rates, it is a good time to file for a refinance. That is traditional thinking, much like the thinking that suggests you need a 20% down payment to purchase a home.
Practically speaking everyone has a different situation, which is why the rule of thumb does not apply to everyone. To make sure if refinancing makes financial sense for you and your family, it’s time to take on your trusted calculator. Run real numbers and find out if you are ready to take on a mortgage refinance or not.
Start by adding the costs of refinancing – such as the cost of a credit check, appraisal, form fee, closing costs, origination fees, and so on. Additionally, check if you have to pay a fine for paying off your loan earlier than expected.
Once calculated find out what interest rate do you qualify for if you take on a new loan. This will help you see if you save money on a monthly basis, or will only be spending money without cause. Gather all the numbers you have calculated and compare them to the ones you currently pay. If the difference is not a significant one or one that offers you a better choice in the years to come – we suggest you hold off refinancing your loan for the time being.
Along with the cost difference, there are a few other things to consider. Think if the home you are currently living in will be enough for you or your growing family in the years to come. Will you still be living in the same state, or working the same job. These small aspects that make up your life can help you decide the right step for you.
Furthermore, homeowners who have paid off a good chunk of the loan should think twice before jumping into a new setting. You may get a lower mortgage rate, but you might end up paying more in interest by extending the loan term.