When Should I Refinance My Mortgage
No doubt many homeowners across the country are evaluating the advantages and disadvantages of refinancing their current mortgages. This evaluation is also coupled with having a strong sense that the financial climate is favorable, or at least stable enough to make the process economically worthwhile. This decision is a critical one. Refinancing a home entails good judgment of timing, and can obviously result in substantial monetary gains and budgetary relief during tough financial periods. This, along with tight credit markets, allows homeowners an alternative means to acquire much-needed cash and budget flexibility for a multitude of reasons.
On the other hand, choosing the wrong time to refinance can result in even more financial woes, sending an already stressed-out budget into a tail-spin. The recent foreclosure rates are certainly a stark reminder of what can happen when the housing market takes a long-overdue dive from its former heyday in the earlier part of the last decade. Again, it is all about timing.
So, the issue of refinancing a mortgage revolves around the question of “Should I Refinance My Mortgage” . There are several key indicators to evaluate before expending the time and energy to accomplish this task, and whether or not the economic atmosphere in a homeowner’s local market is conducive to pursuing the process further.
Indicator: Qualifying for Lower Interest Rates
If the existing mortgage was processed at a time when the rates were much higher than at present, or more importantly, a borrower’s credit rating was at a lower point than it would be currently. By checking the current status of the credit scores, along with having a much improved credit history overall, will greatly affect the chances of acquiring a much lower interest rate in the refinancing process. In addition, the choice to refinance must be evaluated only when the interest rate factor is significant enough to warrant a major improvement to the monthly payment obligation, which is generally around 2% or more, to have an impact.
Indicator: Switching from an Adjustable Mortgage
If the current economic climate is having a serious affect on maintaining the budget as a result of taking on an adjustable rate mortgage in the past, when it was deemed both favorable and affordable at the time. Back then, the very attractive adjustable rate mortgage allowed borrowers to buy perhaps more home for their money, and reaped the short-term benefit of lower monthly payments. These payment obligations eventually became hard to manage when the flexible rates applied to those mortgages rose well beyond their short-term forecasting, and become financially unfeasible. The refinance plan would be to qualify for a fixed rate mortgage, and at a much lower interest rate, in order to stabilize the monthly repayment to a more budget-friendly amount. Though the refinancing process might entail new closing costs and penalties, the long-term gains may outweigh these initial expenditures.
Indicator: Time for Home Improvements
If gaining access to the equity in the home will allow long-overdue improvements to be made, and therefore greatly increase the overall market value of the property. Using the equity for unnecessary purchases, or those that can be postponed or paid for by other means, like vacations or a new car, is detrimental to the refinancing concept. Using the equity from the home to remodel, put on an addition, upgrade the appliances and so forth, will add more value to the refinancing equation. These equity funds took some time to accumulate, so the best investment is to put it back into the investment itself – the home, in order to better capitalize on the funds gained by the whole refinancing effort.