Deciding on the Most Ideal Time to Refinance
Many considerations can influence your decision of refinancing at a certain point of time. Thus, choosing the best time to refinance the loan on your house isnt as simple as it appears to be.
Economic Environment
The present state of the economy is an important factor in choosing the best time for a mortgage refinance.
A number of economic factors impact whether or not interest rates are likely to rise or fall. In times of high consumer spending, because of which prices rise according to the economic laws of supply and demand, it is not unusual for the government to raise interest rates as a means of slowing the rate of inflation. Usually, when interest rates go up, consumer spending slows. The resulting decrease in demand therefore results in a decrease in prices.
Then again, when consumers spend less, the government may bring down interest rates to persuade customers to increase their expenditure. When interest rates drop, it is a good time to take advantage of the lower interest rates and opt for a refinance loan.
Credit Matters
Prior to applying for a refinance loan, examine your credit reports from the three main credit agencies. Ensure that the reports contain correct information about your credit status. If you find any mistakes in your credit reports, particularly ones that could have a negative impact on your credit, get them corrected before you apply for financing.
If you tell your credit score to prospective mortgage lenders, normally they should be able to give you a good idea of the interest rate you could receive with a refinance mortgage. In this way, you can avoid filling out paperwork unnecessarily if you it is possible that you will not be eligible for a better interest rate than the one on your existing loan to begin with.
Age of Current Loan
Mortgage lenders dont look favourably on borrowers who refinance too often. Usually, you should keep a mortgage loan for at least four years before looking at refinancing.
Remember also that there are closing costs associated with refinancing your mortgage loan. If you havent had your present loan very long, the savings you realize from a small fall in interest rates might not make up for the closing cost expense.
Other Factors
It may be worthwhile to refinance if there has been a significant growth in the market value of your home. If you need cash for an important purchase, or you are paying a high interest rate on the debt on your credit cards, car loans, or some other type of debt, it makes sense to refinance and take equity from your home to pay off those other expenses.
You may consider refinancing, if your financial standing has significantly risen since you took your initial loan. If youve received a large bonus or completed credit rehabilitation, you could qualify for an enhanced interest rate, regardless of the state of the economy.
Rule of Thumb
Refinancing will only be worthwhile if your interest rate is going to drop by 2% or more. In addition, be certain that you are acquainted with all of the costs related to refinancing.
Will you be punished for early repayment of your existing loan? What are the closing costs? Always shop around to ensure that your lender is proposing the best available interest rate and closing cost terms.
