When to Refinance
When is a good time to refinance? "I have heard that lowering my rate by a minimum of 2% is the only time I should refinance, is this correct", asks one borrower? A good time to refinance depends on your individual situation. Only refinancing when you can lower your rate by at least 2% is an old myth. There are many reasons to refinance your home mortgage loan and many times when refinancing can help you. Talk with a mortgage adviser to see what loan programs are available for you and if refinancing your home would make sense.
A good time to refinance is when the interest rates get much lower than when you obtained your home mortgage loan. By refinancing to a much lower rate you can not only save a lot of money from your monthly mortgage payment, but you can also look into cutting your mortgage term down from 30 years to 20 years and still be able to lower your mortgage payment. By lowering your mortgage term you can generally save 10's of thousands, and sometimes 100's of thousands of dollars in mortgage interest alone. Therefore, it is a good idea to pay attention to the interest rates from time to time to see where they are at or check with your personal mortgage representative occasionally to get an update from him/her.
If you are currently paying private mortgage insurance (PMI) and know that your property value has substantially increased, and then it would be in your best interest to refinance. With property values increasing, your loan-to-value will be decreasing, which means that a rate and term refinance will eliminate the PMI and start saving you money immediately.
When you need to get cash out of the equity of your home you can refinance to obtain this. Refinancing your mortgage to get cash out can be done as a first mortgage refinance, or the cash out can be obtained by getting a HELOC, a home equity line of credit, or a second mortgage. All options can provide many benefits but you must talk with a licensed mortgage advisor in order to see which option will be ideal for your particular situation.
You may want to consider a refinance if you have some expenses coming up such as:
These are just a few reasons why you may need to refinance your current mortgage.
Whether or not refinancing is beneficial is mainly up to you. If you are refinancing because you want to lower your rate but you only have 20 years left on your loan, will a new 30 year loan be the right program? It might be. If you want a lower monthly payment than it probably is right but if you want to lower the total amount of interest paid on the loan, it may not be. You have added 10 more years worth of mortgage payments on your home. Is the monthly savings worth the extra 10 years worth of interest? Only you can be the judge. You know your budget better than anyone else and if you don't have a budget, then it is definitely time to get with your mortgage professional and create one. You won't be sorry you did.
Normally, our customers refinance to get a lower interest rate or to lower their monthly payments, it really depends on your individual goals. If you would like to reduce the amount you are paying in interest, you may want to consider a loan with a reduced term. If you would like a smaller payment, you may want to consider a longer term, an adjustable rate interest or an interest only loan however you may pay more interest over the life of your loan.
Also, other good reason to refinance is for investment purposes. Consult with your financial planner or accountant to find alternative investment opportunities. You might find a high return on investment might be better suited for you rather than having your home equity accrue with no interest opportunity.
If you have an adjustable rate mortgage that is set to adjust soon, now may be the time to start shopping for your next mortgage. The process generally takes 20 - 30 days but the extra time can be spent removing credit report errors, gathering all documentation, and deciding on what loan program is best for you.
One obvious reason to refinance is when the fixed rate period of any type of adjustable rate mortgage (ARM) loan has come to an end. For example the fifth year of a 5 year ARM and the third year of a 3 year ARM.
There are so many programs out there today then there used to be that can give the home owner the edge in creating a financial plan for their future. Whether its home improvement, debt consolidation, or lowering the monthly payments for cash flow, or getting equity cash out for other important financial decisions (education, investments, business, medical, etc), a mortgage broker professional can assist you in reviewing these options and what will work best for you.
Sometimes life may throw you a curve ball such as a medical emergency or a major repair on your property. Even if you are not reducing your rate refinancing may be the best and only solution to solve these problems and avoid either troubled credit or further damage to your residence.
If you are considering a second refinancing, don't overlook this potential tax write-off: When you pay points to refinance, you must deduct the amount over the life of the loan, usually 30 years. But when you refinance a second time, all of the points that have not yet been deducted from the first refinancing can be written off in a lump sum.
If you have any questions regarding our products, you can contact us by calling or e-mailing us and we'll get back to you as soon as possible. Thanks!
Information listed above is to be used for educational purposes only and is not guaranteed