The Best Times to Refinance Your Home
- By Sean A. Kelly
- Published 12/26/2011
- Finances
- Unrated
It is never wise to rush into refinancing your home. Careful and thorough consideration needs to be done before committing to a home mortgage refinance. In many cases, it might not be the reasons that are of utmost importance but the timing of it all. Sometimes you might be thinking of refinancing for the right reasons but if it is not the right time, it probably won’t do you much good if you insist on going for a home mortgage refinance. So how do you know if it is the best or even the right time for you to be refinancing your home?
One of the suggested times to refinance home mortgage is when the market interest rate has dropped to a very low rate. This might be most beneficial to you if your first mortgage is an adjustable rate mortgage and you wish to convert it into a fixed rate mortgage. By doing so you might be able to enjoy a low fixed interest rate throughout the entire term of your loan. However, you might want to remember that it is not necessarily wise for you to base your decision solely on the low interest rate. Let’s say you have just taken a home loan on your first home and a few months later the market interest rate drops to an all-time low. It might seem like a good time to refinance your home from one point of view. But creditors generally do not like it when you refinance your home not too long after acquiring your first home loan.
One of the main targets of refinancing is to get better and lower interest rates to reduce the monthly payments you will have to make. However you might want to know that the best deals and offers are often reserved for those with good or excellent credit scores. So when your credit scores have improved it may be a good time for you to consider refinancing your home because you will be able to get the best offers and more importantly, lower interest rates. Ideally you may obtain your credit report and check through it to detect any error or mistakes before applying for a home refinance.
When you have paid off your other debts or obtained a significant increase of income, it may be a good time to refinance your home. Once you are rid of your unsecured debts such as student loans and credit card debts, and you are getting a pay raise you will be improving your debt-to-income ratio. When your debt-to-income ratio is good or excellent, you will be considered as a low risk debtor by your creditor and you will most probably qualify for a much lower interest rate. Therefore it is advisable that you refinance your home in such situations.
Sometimes you may have to calculate if it may be the best time for you to refinance your home especially when it involves refinance costs such as closing costs and purchasing points. So get your calculator out and figure out if you will be paying more in closing costs than you will save on your remaining monthly payments if you refinance. Since the general idea of home refinancing is to enable you to save money rather than spend it, it is recommended that you opt for home refinancing if you are able to save more money even after paying the closing costs.
Refinancing your home might also be equivalent to taking a home equity loan. In any case, it is recommended that you consider refinancing only after you have accumulated at least 20% in equity of your home. Why is that? When you truly own at least 20% of your home, you might benefit from refinancing by reducing the Private Mortgage Insurance (PMI) that you have been paying monthly. What is a PMI? It is an insurance required for loans where the debtors did not make a down payment of 20% or more. So you might actually reduce your monthly payment by up to $150.00.
So it is advisable that you always consider the best times for you to actually go ahead and refinance your home so you will be able to truly enjoy the benefits of home refinancing and reduce the chances of having to bear unnecessary risks.
One of the suggested times to refinance home mortgage is when the market interest rate has dropped to a very low rate. This might be most beneficial to you if your first mortgage is an adjustable rate mortgage and you wish to convert it into a fixed rate mortgage. By doing so you might be able to enjoy a low fixed interest rate throughout the entire term of your loan. However, you might want to remember that it is not necessarily wise for you to base your decision solely on the low interest rate. Let’s say you have just taken a home loan on your first home and a few months later the market interest rate drops to an all-time low. It might seem like a good time to refinance your home from one point of view. But creditors generally do not like it when you refinance your home not too long after acquiring your first home loan.
One of the main targets of refinancing is to get better and lower interest rates to reduce the monthly payments you will have to make. However you might want to know that the best deals and offers are often reserved for those with good or excellent credit scores. So when your credit scores have improved it may be a good time for you to consider refinancing your home because you will be able to get the best offers and more importantly, lower interest rates. Ideally you may obtain your credit report and check through it to detect any error or mistakes before applying for a home refinance.
When you have paid off your other debts or obtained a significant increase of income, it may be a good time to refinance your home. Once you are rid of your unsecured debts such as student loans and credit card debts, and you are getting a pay raise you will be improving your debt-to-income ratio. When your debt-to-income ratio is good or excellent, you will be considered as a low risk debtor by your creditor and you will most probably qualify for a much lower interest rate. Therefore it is advisable that you refinance your home in such situations.
Sometimes you may have to calculate if it may be the best time for you to refinance your home especially when it involves refinance costs such as closing costs and purchasing points. So get your calculator out and figure out if you will be paying more in closing costs than you will save on your remaining monthly payments if you refinance. Since the general idea of home refinancing is to enable you to save money rather than spend it, it is recommended that you opt for home refinancing if you are able to save more money even after paying the closing costs.
Refinancing your home might also be equivalent to taking a home equity loan. In any case, it is recommended that you consider refinancing only after you have accumulated at least 20% in equity of your home. Why is that? When you truly own at least 20% of your home, you might benefit from refinancing by reducing the Private Mortgage Insurance (PMI) that you have been paying monthly. What is a PMI? It is an insurance required for loans where the debtors did not make a down payment of 20% or more. So you might actually reduce your monthly payment by up to $150.00.
So it is advisable that you always consider the best times for you to actually go ahead and refinance your home so you will be able to truly enjoy the benefits of home refinancing and reduce the chances of having to bear unnecessary risks.
