When To Refinance Your Home
There is a lot of information regarding refinancing your home, and it is important to approach it with all your current expenses and loan commitments on-hand. The ideal time to refinance is when you can lock in a desirable interest rate that will lower your monthly payments.
It may seem as simple as a lower interest rate equals a lower payment and therefore is the best option, but it is also important to consider the life of the loan, closing costs and duration you plan to be in your current home.
Refinancing typically makes sense if you fall into one of the categories below.
Your Current Mortgage is Longer Than 15 Years
If you purchased your home under the terms of a 30-year term then refinancing makes a lot of sense, especially if you are in the position to lock in a 15-year rate. If you secure a rate low enough on a 30-year term then you are better off making extra payments to shorten the overall term of the loan. At the end of the day you want to pay off your home as soon as possible!
You Have an Adjustable-Rate Mortgage
Commonly referred to as an ARM, these rates can adjust based on multiple factors. Although it may seem appealing starting off with a few years at a low, fixed rate, this can quickly change based on the mortgage market and the banks themselves. The risk in this situation is transferred in full to the homeowner. To avoid insane rate increases it would be a good idea to refinance into a lower, fixed-rate.
You Have a High Interest Rate
You want to make sure it is worth it to refinance keeping in mind what it would look like to “break-even” on this switch. There will be closing costs involved on the new mortgage, but if you plan to be in the home long-term that will give you time to make up those additional costs still making a refinance worth it. If your current rate is 1-2% higher than the current rates in the market then you should consider a refinance if it lowers your rate and shortens your payment schedule.