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Should I refinance now or wait

Should I refinance now or wait for Pre-pay? - We are asked quite often about whether or not its worth refinancing and paying off the Pre-payment penalty now or waiting until the Pre-payment penalty is up. There are many considerations to take into account and are important to discuss with a mortgage professional. Here are some ideas to discuss:

If you have an adjustable rate and your payments have already started to rise, it may be smart for you to refinance before the pre payment penalty is up.

If you are having a difficult time making the higher payments, you should refinance as soon as possible. Missed or late mortgage payments will lower your credit score and could prevent you from refinancing when your pre payment penalty is up.

Don't get "sold" on the tax benefits of the tax deductible interest that accompanies the pre-payment penalty. You'll need to determine your tax rate to see if the tax deductible interest makes sense.

If your prepay penalty is a small amount and refinancing now to lock in a low interest is in your best interest as opposed to waiting for a prepay to mature. If you don’t mind rates being a bit higher and do not need cashout from your property than waiting will save you on having to pay a prepay penalty.

An experienced loan officer can help you determine and make an educated decision as to whether refinancing before your pre-payment penalty is up will or can be worth it now and in the long run. What are the rates doing and what are they expected to do? What is your current financial situation? What type of mortgage do you currently have? How much longer do you have on the term of your prepayment penalty? How much is your prepayment penalty? These are all very good questions that will play a role in the decision of whether to refinance now or wait until you penalty has expired.

When is the right time to refinance? - This is a question that only you can answer. Many lenders will tell you that you ‘need’ to refinance if it is going to save you $50 or more per month. You have to ask yourself if the costs of doing the loan will outweigh the benefits that you will receive from the new loan. A good loan officer can help you determine this by finding out what the cost of the new loan will be, and what your new payment will be. From there, it is up to you to determine if it is really in your best interest.

If you want to do home improvements, such as finishing a basement or upgrading a kitchen, you can get a home equity line of credit. However, you will have your original payment, plus a line of credit payment. Another option is to do a cash out refinance that will result in one payment spread out over a longer term, thus, a smaller payment.

There are some basic "no brainer" times to refinance. If your credit was less than perfect and your mortgage is an ARM with a short fixed period (2 or 3 years) you should plan to refinance just before you enter the adjustment period. Once you enter the adjustment period your rate could increase by as much as 2%. You should refinance to a fixed rate mortgage, you will most likely lower your payments or keep your payments and go to a shorter term such as 20 or 15 years

The right time to refinance really depends upon your current financial situation and what you need to do to get into a better financial situation. If you are looking to consolidate debt and bills into your mortgage, then you will need to wait until you have enough equity built up into your home to do this. If you simply want a lower rate and or term then you should consult your mortgage professional to see if the benefit of refinancing makes enough financial sense to you. Therefore, each unique situation requires its own personal analysis to see when the right time to refinance may be.

If you have ARM and it is about time to adjust from fixed to adjusting period, you might consider refinancing to get better term on your mortgage. By switching to a fixed-rate loan, you will not only reduce your payment, you will also likely lock in an attractive rate for as long as you own your home.

Many people refinance and use cash taken out to purchase investment properties. While this certainly isn't for everyone, real estate investment can be very lucrative and can many times require very little cash out of pocket. If you are considering buying an investment property and would like to take cash out of your equity ask your mortgage professional how this can work for you.


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