The Best Time to Refinance Your Mortgage

You leveled up to House Wizard a few years ago by getting a mortgage and establishing your first home. Great work! But now you’ve been there a while, the magic has just gotten better, and you’re beginning to wonder if refinancing your loan is a good idea. Maybe it is, maybe it isn’t. But how will you know?

First, you need to find out what it means to refinance your loan. What does that look like in real-life terms (and not that random wizarding video game reference)?

Just like when you bought your home, you’ll locate a possible lender. Then you’ll apply for a loan all over again using your credit score, income, and debt-to-income ratio. Similar to how it was when you applied for a loan the first time, there will be closing costs.

The idea is that refinancing to a new loan will pay off in the long run, despite the closing costs that you’ll have to come up with for a new loan. There are many reasons to refinance, let’s take a look at some now.

Overall Interest Rates Went Down

If you bought a home during a time with a higher interest rate than what we’re currently seeing, then this could be a good time for you to refinance.

Generally speaking, if the current rates are lower than when you secured your initial home loan, a new loan could save you a sizable chunk on your monthly payment. This one varies person to person, so actually speaking with a lender can help you negotiate the twist and turns that crop up in the home mortgage landscape.

Experts advise against trying to predict where interest rates will be in the future to determine whether now is a good time. Rather, look at what is happening in the market with rates and make that call based on actual calculations using a loan calculator with the current rates. Or to be on the safe side, talk to your lender. They’ll have insights into specifics that might be easy to miss and can suggest options that you might not know off the cuff.

Credit Score Went Up

Depending on when you bought your house, there’s a chance that since you signed on the many, many dotted lines, your credit picture now may look better than it did back then.

If your credit score went up significantly, you may qualify for a better interest rate now, and refinancing could cause your monthly payment drop enough to justify the closing costs, which can be in the thousands to several thousands.

Similarly, if your income has gone up since you first secured your mortgage, you may see an improvement in the sort of interest rate you qualify for on a new loan, which can decrease your monthly payment even if overall interest rates aren’t down.

Reduce a Loan Amount

With the myriad of home-buying assistance programs such as FHA loans and others like them, some mortgages have a monthly insurance premium factored in. If you have a loan like this, refinancing may take away the mortgage insurance and in so doing, could lower your monthly payment.

Additionally, say that your original loan was a fixed-rate 30-year loan and you need to lower your monthly payment. By refinancing to another 30-year fixed-rate interest loan with the remainder of what you still owe on your original loan, you may be able to shave off hundreds of dollars of your monthly payment. What’s happening in this scenario is that you’re increasing the length of your loan again.

Convert to Fixed Rate

Perhaps you bought a house using an Adjustable-Rate Mortgage (ARM) and would like to switch to a fixed-rate mortgage. The uncertainty of how interest rates will fluctuate can be uncomfortable and unpredictable, and so securing a fixed-rate loan may be in your best interest. And in this scenario, it doesn’t always require an incredibly low interest rate to make switching to a fixed-rate interest loan beneficial.

Whatever your financial picture looks like, it’s a great idea to be aware of the option to refinance and polish up your personal home loan if it works for you and lowers your monthly payment. If you’re curious about your specifics, it may be worth reaching out to a lender to advise you on the benefits of taking a step toward refinancing. 

What’s the best time of year to refinance?
https://www.mint.com/personal-finance-4/whats-the-best-time-of-year-to-refinance-your-home

How to know when to refinance your mortgage
https://www.bankrate.com/finance/mortgages/when-to-refinance-your-mortgage-1.aspx

4 Smart Reasons to refinance your mortgage
https://www.forbes.com/sites/robertberger/2016/11/29/4-smart-reasons-to-refinance-a-mortgage/#1fc1194a6964

3 Signs you should refinance your mortgage
https://www.fool.com/investing/2018/09/24/3-signs-you-should-refinance-your-mortgage.aspx

refinance-time

I want to lower my current interest rate, reduce my monthly payments, or tap into equity.

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