Deciding on the Right Time to Refinance
Choosing when to refinance the mortgage on your place of residence isnt as simple as it looks. The current rate of interest isnt the only factor to have a say in your decision of refinancing at a given point in time. There are a lot of considerations that are just as important.
Economic Environment
The current state of the economy plays an important part in deciding upon the best time for a mortgage refinance.
Many economic factors impact whether or not interest rates are likely to rise or fall. In times of high consumer spending, because of which prices rise as per the economic laws of supply and demand, it is not unusual for the government to inflate interest rates to reduce the rate of inflation. Normally, when interest rates go up, consumer spending decreases. The resulting decrease in demand results in a decrease in prices.
On the contrary, in times when the economy is slow, a decision may be made to drop interest rates to encourage consumer spending. For many people in various situations, when interest rates drop due to a drop in consumer expenditure, it is a good time to refinance and enjoy the benefits of lower interest rates.
Credit Matters
Prior to applying for a mortgage refinance, study your credit report from the three main credit bureaus, Experian, TransUnion and EquiFax and make sure that the reports contain accurate information. If you find any mistakes in your credit reports, particularly ones that are likely to have a damaging impact on your credit, get them set right first and then apply for financing.
If you know your credit score when you go to potential mortgage lenders, usually they can give you a good idea of what type of interest rate you could receive with a refinance mortgage. This information can save you a lot of time, pointlessly filling out paperwork if you arent likely to qualify for a better interest rate than the one on your current mortgage in the first place.
Frequency of Refinancing
Mortgage lenders dont look favourably on borrowers who refinance frequently. Typically, you should keep a mortgage loan for at least four years before thinking of refinancing.
Remember also that there are closing costs associated with refinancing your mortgage loan. If you havent had your current loan for a long time, the savings you realize from a small drop in interest rates might not make up for the closing cost expense.
Other Factors
You could consider refinancing if the market value of your home has risen considerably. If you need cash for a major purchase, or you have high interest debt on credit cards, automobile loans, or some other kind of debt, it can be very beneficial to refinance and take equity from your home to take care of those other expenses.
If your financial situation has changed significantly in a positive way, since you took your initial mortgage, you may want to consider refinancing. If you have received a considerable raise or completed credit rehabilitation, you may possibly qualify for an improved interest rate now, regardless of the economic environment.
Rule of Thumb
Refinancing will only be worthwhile if your interest rate is going to decline by 2% or more. Also be certain that you are acquainted with all of the costs associated with refinancing.
Will you be punished for early settlement of your current mortgage? Do you have any idea of the closing costs? Always do some research to make sure that your lender is proposing the best available interest rate and closing cost terms.
