7 Signs It's a Good Time to Refinance Your Mortgage Loan
7 Signs It's a Good Time to Refinance Your Mortgage Loan
If you've ever wondered if "now" is a good time to refinance your home loan, you're not alone. Many people are unsure of when is the right time to refinance and thus, have a hard time moving forward with the process. If you think it may be the right time to refinance, the best thing you can do is to start your research. To begin, see if the following seven signs may be pointing you to seriously consider mortgage refinancing.
When percentage rates go down Typically, if you can secure at least a half a percentage point lower than your current interest rate, it may make sense to refinance. However, if you are able to secure at least a one point decrease or more, it is usually worth refinancing.
When you do the math Divide the total cost to refinance (including closing costs and various fees) by the amount of money you'll save per month. The quotient you get is the number of months it will take until you start experiencing the savings from refinancing. For example, if you estimate it will cost you $2,000 in closing costs and fees but your monthly savings will be $200 a month, then you know that it will take 10 months to start seeing the savings from refinancing your mortgage.
When you think you'll be in your home for years to come After you do the math, look to see if the number of months from the quotient above is at least how long you plan to stay in your home. If it's not, then refinancing may not be the right choice for you. However, if you plan on being in your home well over the amount of time it will take you to break even, refinancing is probably in your best interest. Not to mention, beyond breaking even with your monthly savings, it is important to note that you will probably be saving thousands of dollars in interest throughout the life of your loan. While this savings is less obvious up front, it is an important to keep this is mind when weighing the benefits versus the costs.
When your credit score has gone up Depending on your credit score when you initially secured your mortgage loan, the interest rate you received may have been a little higher than you would have preferred. Often, lower credit scores result in higher interest rates because lenders consider the loan higher risk. Lenders are constantly reevaluating the criteria they look for when offering a customer a specific interest rate. For example, a credit score that was once considered "excellent" now may only be considered "good." However, if you've been able to substantially increase your credit score you may find that you'll now be able to secure a lower interest rate through mortgage refinancing.
When you want to eliminate private mortgage insurance (PMI) If your loan balance is less than 80% of your home's value, private mortgage insurance (PMI) is usually not required. This means if you have built enough equity in your home, you don't necessarily have to refinance your mortgage to eliminate PMI. In this case, eliminating PMI will cost you nothing. However, if you think your home has appreciated enough to eliminate PMI and you want to potentially speed up the process, you may want to think about refinancing in order to cut out this often unnecessary extra payment in another way.
When you want to build equity faster If you're less concerned with keeping your mortgage payments low and care more about building equity quickly, you may want to consider refinancing your 30-year loan to a 15-year loan. While your payments will inevitably increase, you will enjoy the added security of knowing you are building valuable equity at a more rapid pace. Additionally, you will benefit if you ever need access to that equity in the future.
When you want to switch loan types Another reason people refinance is to switch mortgage loan types. Many times, those who originally financed their home with an adjustable rate mortgage (ARM) loan and weren't planning to stay in their home for an extended period of time often look into refinancing to a fixed rate loan after the lower introductory period of their ARM comes to a close. This way, you can enjoy the initial attractive rate of an ARM loan and then take advantage of the steady payments that come with a fixed rate mortgage loan once you refinance.
Refinancing can be a great way to save money, build equity, and take advantage of attractive interest rates. However, it is always important to factor in all the variables before making your final financing decision. Be sure to realistically consider closing costs and other fees that may arise so you are never left unprepared when making the best decision for you and your family. But, if you do decide that mortgage refinancing is the smart choice for your situation, be sure to shop around for the interest rates that you feel comfortable with. Companies like Nationwide Bank offer attractive mortgage refinance rates to help you pay less on the money you borrow. Start your online mortgage application today!
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