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How to Know When It’s Time to Refinance Your Home Loan

Finance

Are the payments on your current mortgage getting steep? Are you concerned about your loan amount and wondering if you could secure a lower interest rate? Do you worry about monthly payments or your credit score? Are current market rates one percent or more below what you are currently paying? If so, now might be the right time to begin your research on the options available to you as a homeowner. To determine whether or not now is a good time to refinance your home, read on.

Why would I refinance?

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Refinance home loan — it can sound intimidating and like three words on a to-do checklist. But the benefits of taking the important step of refinancing your home loan can save you bundles. Whether it’s to secure a lower rate, find a new lender, or change the terms, there are many things to consider before taking the leap. Always do your research before making this huge financial decision. It’s okay to shop around for lenders and to ask questions. You aren’t locked into a new loan until the deal is final and if you have hesitations about a new loan package, it might be better to wait.

At the same time, reviewing your current set up could bring some financial freedom to your life now or in the future. For this reason, it may be worth looking into the benefits of a new loan.

The Benefits of Refinancing

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One benefit to refinancing is that it may leave money at the end of each month to save up for that focal point of a kitchen you’ve been thinking about for years. Whether you are looking to pay your home off faster or to save up for new cabinets, refinancing could be the ticket to freeing up money for home projects, retirement accounts, events, travel, and more.

The benefits of refinancing include the ability to review and change the terms of your loan, including reducing a thirty-year mortgage to a fifteen-year contract so that your home is paid off quicker. Lower interest rates are another reason some homeowners refinance. Some rate change can mean saving hundreds a month on regular payments. If you are considering a loan do-over, ask your new or potential lender about buying out points to keep fixed interest rates low over the course of your new loan.

Signs — It’s Time

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While a refinance should never be a rescue plan and does involve closing costs and other fees, you will know when it’s time to rethink your mortgage payment situation if you have a variable interest rate or payments are getting uncomfortably big. Your credit score will be important when you approach a new lender for new terms, so be sure to have that in order with your payment history on the current mortgage before you start the process.

The general rule on when to refinance is if fixed rates are one percent or more than your current rate. That is, if you could save one percent or more with a new fixed-rate, it might be time to give lenders a call. But interest rates alone should not be the only factor you consider when thinking about securing a new home loan. You will also want to look at your goals. Ask yourself how long you have been in the home, how many years you have left on your original loan, and how quickly you want to pay it off. A new rate might not be worth starting over. The only real way to know is to do the math.

Exploring Options

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At the end of the day, it never hurts to explore your options. Pulling out a calculator and running math is the best way to know whether or not a new loan is best for you and your home. Reach out to professionals in the field and consider both fees and terms before signing on the dotted line. The process doesn’t have to be as intimidating as it may sound and people will be willing to help if you reach out. If you do your research, you will thank yourself for it long before your next payment is due.