You’re considering refinancing your home. How exciting! One of your big questions as you make your decision is probably whether now a good time to refinance a mortgage is. There are many variables to consider, and it’s important that you have all the information needed to make the most informed decision, including understanding why you want to refinance. Some homeowners refinance to change their terms, lower their rates, or because their income situation has changed. Determining why you want to refinance will help you look at the information and figure out if now a good time for you to refinance is.
Here are a few questions you should ask if you’re considering refinancing your mortgage.
What Happens During A Refinance?
If you own a home, you’re eligible to apply to refinance your mortgage. During the refinance process, your current home loan is paid off by a lender—this can either be the same or a new lender. The remaining balance of the original loan is replaced with a new loan, and all future payments go toward that new loan. During the process of refinancing, you have the opportunity to change the terms of your loan. This can include a different interest rate, longer or shorter repayment schedules, lower monthly payments, and more. If you can benefit from improving your terms, it may be a good time to refinance your mortgage.
What Are the Current Refinance Rates?
One of the most important questions when you consider refinancing is to ask what the current rates are. Interest rates are constantly fluctuating based on the current housing market and the economy. Knowing the current interest rates of a mortgage refinance could help you to better decide if now a good time to move forward is. Most notably, if the current rates for a refinance are lower than the interest rate on your current mortgage, you may want to consider refinancing sooner rather than later.
Refinancing your mortgage with a lower rate can save you money in a few ways. To start, it may save you money on your monthly mortgage payment. If you’re looking to have a lower payment each month so that you can have more cash in your pocket, a lower interest rate can accomplish that. It can also help you to pay less over time. With a lower interest rate, your overall payment throughout the life of your loan can be lowered by thousands of dollars. Keep an eye on the current mortgage loan rates so that you can know if now is a good time to refinance.
What Are The Benefits?
Knowing the benefits of refinancing your mortgage can allow you to make a more informed decision about how you plan to pay for your home. The benefits of refinancing are many, and different benefits will appeal to different people. While everyone’s financial situation is unique, there’s a good chance that at least one of these will apply to you.
One of the benefits of refinancing your mortgage is the option to cash in on your equity. With a cash-out refinance, you receive some of your home’s equity in cash. This is a great option for homeowners who are looking to make home improvements or pay off other existing debts that have higher interest rates. If you are interested in doing one of those things soon or need cash for different reasons, now could be a great time to consider refinancing your mortgage.
Another benefit to refinancing is the ability to eliminate your private mortgage insurance (PMI). PMI is a type of insurance that protects the lender should you be unable to make your monthly payments. If your mortgage balance reaches an 80 percent loan-to-value ratio when you refinance, you’ll be able to skip the PMI with your refinanced loan. This can save you hundreds of dollars a month and can make it a good time to refinance.
Has Anything Changed Since Your Loan Closing?
A lot can change between your first mortgage loan application and making the decision to refinance. When you’re considering refinancing your mortgage, you should ask yourself what has changed in the years since you were approved for your initial mortgage. The answer to that question could help you decide whether now is a good time to choose to refinance or if it’s best to hold off for a while longer.
If you’ve made positive financial changes since you took out your loan, you’ll be a more appealing borrower to financial institutions. Things like an improved credit score, increased income, or lower overall debt are all positive changes that financial institutions like to see on your application. These changes can help secure you a better interest rate during your refinance or get you approved for your preferred terms.
On the other hand, negative financial changes can have a different impact on your refinance. If your credit score has gone down, you’ve been late with payments, or you’ve recently lost your job, it may be more difficult for you to secure the terms you want. Those negative changes can also have an impact on the interest rate financial institutions will offer you. Waiting until you’ve corrected one or more of these issues may be a better decision for you.
How Much Equity Do You Have In Your Home?
Knowing how much equity you have in your home can help you to better determine if now is a good time to refinance. Having equity in your home can allow you to do a cash-out refinance or to refinance without having to pay things like PMI.
To find out how much equity you have in your home, you have to know how much your home is currently worth. It could be more or less than what you paid for it, depending on the current market, so you’ll want to enlist the help of a professional to get a more accurate number. Your equity will be the result of subtracting the amount you still owe on your mortgage loan from the amount that your home is currently worth. If your home is currently worth more than what you paid for it, and you could use some cash to pay off other outstanding debts, then it could be a great time to refinance.
Before you make any decisions, it’s important to consider whether now is a good time to refinance or not, and it’s vital that you look closely at your personal financial situation in the process and speak with a refinance lender to look at your options. The home loan experts at Solarity Credit Union in Washington State, for instance, can help you ask the right questions and make the right decision for you.