When to refinance your mortgage
Sometimes the sequel is better than the original, at least as far as mortgages go. Because the mortgage you have may not be the mortgage you want.
The good news is that lenders believe in second chances — and refinancing could be yours. But when is it the right time to refinance? We can help you figure that out.
What does it mean to refinance your mortgage?
Refinancing is kind of like trading in your car for a better one. But instead of a car, you’re trading in your mortgage for a better loan. Think of what you don’t like about your current mortgage. Is the interest rate higher than you’d like? Are the monthly payments too big for your budget? Refinancing gives you the chance to set better terms for your home loan.
For example, say you’re able to refinance with a lower interest rate than your original mortgage. Your new loan will pay off the remaining balance from your previous loan. You will still owe the same amount, but you will save money by paying less interest the rest of the way.
When is the right time to refinance?
Don’t plan on signing for a mortgage and then immediately start shopping for a new loan. Good things come to those who wait, right? Lenders usually want to see how you’ve managed your original mortgage before they agree to refinance. It’s a lot like building a resume, and resumes that don’t have experience aren’t going to get you very far. Try to keep your original mortgage for at least 12 months and make sure you are making your payments during that time.
You know what also looks good on a resume, at least in the eyes of a lender? A good credit score. If your credit score has improved since you signed for your first mortgage, a lender might be more willing to offer you a new loan with a lower interest rate.
Watching the news can also help you know when the time is right to refinance your mortgage. The U.S. Federal Reserve has been known to lower interest rates to encourage more people to borrow and spend money from lenders, which helps boost the economy.
Is refinancing right for you?
We’ve already mentioned the potential savings from refinancing at a lower interest rate, but there are other reasons to consider refinancing, too. If you have an adjustable rate mortgage, your interest rate is at the mercy of the market. Refinancing with a fixed interest rate means you’ll have the comfort of knowing exactly how much interest you’re paying on your home loan.
It’s also worth thinking about the total cost of refinancing. There are going to be closing costs, which can include a home inspection fee, lender’s attorney review fee, origination fee and points fees. Fees as far as the eye can see! There could also be a prepayment penalty on your existing mortgage. So before you sign on the dotted line, consider the total cost.
Time is another important consideration. Do you plan on moving in the near future? How close are you to the end of your original mortgage’s term? It may not be worth refinancing if a move or the additional fees as you near the end of your loan could offset the potential savings.
Ready to refinance? Say no more! Our mortgage partners at Luminate are ready to help you replace the mortgage you have with the mortgage you deserve.