When You Should Consider Refinancing Your Home Loan

When You Should Consider Refinancing Your Home Loan

Home loan refinancing is a popular option with homeowners for a number of reasons. In most cases the new loan has more favorable rates and terms that will help you save money. When you refinance your mortgage, the new loan is taken against the same collateral and can exceed the existing loan balance. The refinance option can be very beneficial in many different scenarios. But before you go for a refinance loan, you should consider whether it is in your best interests or not. A variety of factors will determine the best time to refinance your mortgage.

Current financial situation

Your existing financial situation is a major factor to consider before you decide to refinance your mortgage. If your financial situation has changed then it might be a good option to refinance your loan. If you are making more money than before, it might be a good idea to switch to a short term loan, saving the money paid on interest. It is also advisable to refinance when your financial situation has worsened. In this case, you have the option of taking a longer term mortgage and make smaller monthly repayments. Remember that when you refinance, you will have to pay title, legal and processing fees. Take them into consideration while making your decision to ensure that it is a suitable choice.

Change in mortgage rates

The current low interest climate is definitely a good time to refinance. You can save significantly on monthly interest payments. If your current mortgage rate is high and the banks are offering refinance options at a lower rate of interest, then it is the perfect time to refinance your home loan. At the height of recession, banks were providing loans at very attractive interest rates, favorable terms and are continuing to do so. You also have the option of selecting shorter term refinance loans to become debt-free sooner or lower interest rate loans if you have a good credit score.

Change in credit score

Refinancing is a good option if your credit score has improved. It is quite easy to get loans even if you have a bad credit history. The terms and conditions for these loans might not be as favorable compared to loans given to people with good credit history. Most high risk borrowers requiring funds urgently will be willing to accept these terms. But if your credit score improves during the period of the loan then you need not continue with the bad loan terms. With an improved credit score you have the negotiation power to improve your loan terms.

Duration of property ownership

If you plan on maintaining the ownership of your house for a long time, then it is a good idea to go for a home loan refinance. Refinancing is not recommended if you plan to sell your house in one or two years. This is because you will anyway end up clearing your mortgage with the sale money.

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