When it comes to refinancing your mortgage, timing is crucial. Whether your goal is to lower your monthly mortgage payments, shorten the term of your loan, or tap into your home’s equity, you need to pinpoint the right time to refinance for it to be financially worthwhile. Refinancing at the right time could save you thousands of dollars over the life of your mortgage. Here are three things you should do to help determine if now is the right time to refinance.
1.) Outline your refinancing goals. There are many reasons why people refinance. One of the most popular reasons is to secure a lower interest rate to lower your monthly mortgage payments. Another common reason for refinancing is to shorten your loan term to pay off your home faster. Refinancing can also be used to tap into your home’s equity. With a cash-out refinance you borrow more money than you currently owe on your home, and the difference between your new loan amount and the balance on your previous mortgage is paid to you in a lump sum. Refinancing to a new mortgage can also allow you to remove a private mortgage insurance (PMI) requirement from your current mortgage, or switch from an adjustable-rate mortgage to a fixed-rate loan.
2.) Review current mortgage rates. In most cases, it doesn’t make sense to refinance unless mortgage rates are lower than what you’re currently paying on your loan. Make sure you know your current mortgage rate, balance, and the amount of time left on your loan. You should then review current mortgage rates for the new loan term you’d like. It’s a good idea to also read up on some mortgage rate predictions so you have an idea of whether rates are expected to change in the next few months. This can help you better time your refinance. You should also keep in mind that your mortgage rate will likely be influenced by your credit score, so if you’ve made improvements to your credit since you took out your initial mortgage, that could work in your favor during a refinance.
3.) Determine how much you would save. Ultimately, you need to determine if refinancing now would benefit you in the long run. This will depend on several factors including the amount you’re refinancing, the interest rate and term of your new loan, the costs and fees associated with the refinance, and whether or not you plan to move before the refinanced loan is paid off. While your refinancing costs and fees will vary depending on your lender, you can help estimate them using a Refinancing Cost Calculator. Once you have an estimate of your refinancing costs and a sense of current mortgage rates, you can use a Refinance Calculator to compare the monthly and/or lifetime savings you could realize from a refinance. If you find that refinancing now would not be financially beneficial, wait until mortgage rates decrease further and then recalculate your potential savings.
Refinancing could save you a significant amount of money in the long run, but it’s important to do your research first to determine the right time to refinance. Jumping into a new home loan just because rates have dropped slightly isn’t the best option. Ensure you have a good understanding of your existing mortgage rate and term, review current mortgage rates and predictions, and use a refinance calculator to help you understand if now is an optimal time to refinance. If you’re interested in refinancing or have questions about the process, schedule a consultation with a BankFive mortgage expert today.