. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How to know when to refinance

Refinancing can be a great money-saving tool for homeowners, or it can be the wrong thing at the wrong time. Last year, according to the Mortgage Bankers Association, Americans refinanced to the tune of $1.17 trillion. The rising cost of fixed-rate mortgages took it to just $938 million this year. That’s still a large number of people who choose to refinance their home or commercial mortgages. Here are some guidelines to help you decide if now is the right time to refinance.

What you need to know before you refinance

You need to be able to answer some basic questions about your home or real estate investment before you can make an informed decision about the best time to refinance. For example, what is your current interest rate? Is it fixed or variable? Is your home increasing in value? Can you afford the closing costs associated with refinancing? What are your plans for your home or real estate?

This prior knowledge will help in several ways. If you plan to move within the next three years, or if the difference in interest rates is less than 1.5%, refinancing may not be profitable at this time. Remember, once you refinance, you need time to recoup the closing costs you’ve invested. However, if you have a variable rate that’s going up, or a fixed rate that’s significantly higher, refinancing can offer you some attractive options.

Why do people refinance?

People refinance for different reasons. In many cases, the decision to refinance can help lower your monthly payments and interest, or reduce the life of your loan and the principal owed. Others get a cash-out closing to make home improvements or pay off consumer and credit card debt. This method generally does not reduce your payments.

Before deciding to refinance

But before you make the decision to refinance, keep in mind that there are costs involved. Closing costs and points will affect how much money you have to pay up front to refinance. One point is equal to 1% of your total loan amount. You should expect to pay 2-3% in points when you refinance. Just like when you bought your home or investment property, the more money you put down, the lower your interest rate is likely to be. There are cases where you can get a free closing, and these are ideal, but not always available.

A word of caution; If you find yourself refinancing annually to pay off debt, you’re not doing yourself a favor. In this situation, you are probably increasing both the life and principal balance of your loan amount. This is a short-term solution that can have long-term consequences.
What can help?

To help get the lowest interest rate when you refinance, you can do one of two things. Put as much money up front as you can, or use that money to pay off consumer credit card debt. Since your interest rate and the amount you can borrow are tied to your credit score, you can save money by improving your score before you refinance.

And don’t forget to shop around. You’ll find many lenders willing to work with you, and mortgage rate calculators are available on many real estate websites. A little homework now will save you a lot of money later.

Leave a Reply

Your email address will not be published. Required fields are marked *