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Mortgage refinancing is big news these days. Hardly a day goes by when we don’t see a TV or Internet ad about the financial benefits we can gain by refinancing and taking advantage of today’s lower interest rates. The advantages of refinancing, however, can depend upon a number of factors, including how long you’ve had your home and how much you’ve paid on your current loan.
Is there a “best” time to refinance your mortgage? As with most financial transactions, the answer depends upon your own situation, as well as outside factors such as trends in the economy. Here are some pointers to help you decide if and when you should consider refinancing:
If you want optimum benefits from refinancing your mortgage, you’ll want to make sure that your credit is as good as it can possibly be. First, check out your credit score. You can get a truly free credit score from Credit Sesame. If it’s 720 or higher, you’ll be able to take advantage of the lowest interest rates available. If it’s around 680, you can still get a good rate, but it won’t be the absolute best. If your score is below 680, you’ll want to improve your score before refinancing. You can do this by paying off your revolving credit cards as much as you can afford. If you can’t manage to pay off your high balance cards, then try to get them down to around 30 percent of their current balances. Also, examine your credit history thoroughly for clerical errors. If you find any, contact your lenders immediately and get these adjusted. You can also hire a credit repair company to fix any errors or negotiate with your lenders. Another tip: Once you’ve paid down your cards, don’t charge any more on them until the entire refinancing process has been completed.
You’ll want to refinance when the interest rates are as advantageous as possible. This may mean acting quickly to lock in a good rate, especially if market trends seem to indicate that rates are on the upswing. Likewise, if you’re opting for an FHA mortgage, keep track on the current news about FHA fees. If you find out that there’s an increase planned (as there was in 2013), then you may want to go ahead and get refinanced before the fees go up. The advantage of an FHA mortgage is that you only need to pay 3.5 percent down, as opposed to at least 5 percent on a conventional mortgage (depending on your credit). Make sure to get plenty of quotes, however, so that you can decide if an FHA mortgage is ultimately better for your finances, especially if there’s a projected fee increase.
Experts agree that it really doesn’t make much sense to refinance your mortgage if you’re not planning to stay in your home for more than two years and preferably much longer.
To help you figure out if it’s really financially viable for you to refinance, given the amount you’ve already paid and the time you’re planning to stay in your home, many websites offer a “break even calculator” to help you calculate the monetary advantages, if any, of refinancing.
To get the maximum advantage from refinancing, you may want to try and refinance your 30-year loan into a 20-year or even a 15-year mortgage. While you’ll be able to save thousands of dollars in the long run, you may see a slight increase in your monthly payments, so make sure you budget for them.
Refinance Calculator: If you think you want to refinance, check out this mortgage refinance calculator to get a better idea of the numbers.
Before you decide to refinance, make sure that you won’t be liable for any prepayment penalties on your current loan. Once you’ve done your homework and decided that refinancing is right for you, the best thing you can do is time it right so that you can get optimum benefits and a payment schedule you can afford.