When Is The Best Time To Refinance Your Mortgage?
There are many ways to improve a financial situation, and for you, it may be refinancing your mortgage. If you are looking to lower rates, lower monthly payments, use home equity, or simply change the terms of your mortgage, refinancing could be for you. When is the best time to do refinancing? How do you know when to do it? Refinancing isn’t easy, so let’s learn a bit more about it.
What is Mortgage Refinancing?
Before talking about the best time to refinance, make sure you understand what mortgage refinancing really is. Refinancing your mortgage is when you take the current terms of your mortgage and renegotiate to make new, and better, terms. These new terms should help your financial situation improve. When you create the new loan, it pays off the original one. Usually, the refinanced mortgage will have low monthly payments, and lower interest rates.
Refinancing can be done as often as you need to, but you have to wait seven months after each financing. Never be shy if you need to ask your Mortgage Broker questions.
Why Should You Refinance?
Refinancing a mortgage is a big decision, and you can always talk it over with your mortgage broker if you need to know more. Here are a few things to know about why you should refinance.
- Refinancing a mortgage will help you save on the interest you have to pay
- Refinancing will lower monthly payments.
- Refinancing will help you achieve your financial goals because it will help you make mortgage payments much easier.
- You can take out funds when you refinance if you have saved up equity. Home equity and refinancing can help when large renovations, repairs, or tuition fees suddenly appear.
- Refinancing will save you money, build up equity, and help you pay off your mortgage quicker.
- If you refinance your mortgage at the right time, you can find lower rates, including interest rates.
- By refinancing, you can consolidate multiple debts into a single, low monthly payment. This can give you the chance to save up and pay off high-interest loans.
- Refinancing your mortgage can be a good idea if you are changing mortgage companies.
When is the Best Time to Refinance?
Although many banks will say the best time to refinance is any time, you need to pick the time that is best for you. You can refinance your mortgage any time during your mortgage term, or even when it is time to renew, but you could see penalties and other fees. Here are some simple suggestions to help guide your refinancing ideas.
- Try refinancing during the last two weeks of the month.
- The best time of year to refinance is the last quarter of the year, from October to December.
- End of the fiscal year for accounting purposes.
- If current interest rates are 1% lower than the existing rate
Here are some more ideas that may help you decide on what time is good for you:
- If you want to reduce your monthly payment
- If you want to save on interest you will pay on the house
- Do you have money to pay fees?
- If you plan on staying in your home for several years (around five)
- You know you have a good chance at being approved for refinancing
- Will you, or your house, qualify for refinancing? What are the factors used to see if you qualify for a refinance? Qualification depends on your credit, your income, and the amount of home equity you have. You will need to show the bank you can make monthly payments and you have good credit. You will also need to show the bank that your house is worth more than the loan value.
The bottom line is, you can refinance any time you want to if you don’t mind paying any fees to get the renegotiation you want. If you want to avoid fees, use the suggestions above.
Selecting the Right Refinancing Loan
When you need to pick a loan, there are a few different types you should know about. Your mortgage broker can explain more in detail, but here is some helpful information to start.
- Cash-In Refinance Loan: This loan isn’t as common as the other loans. It is a good loan to apply for when you are having a hard time making mortgage payments. A Cash-In Refinance loan will help you qualify for lower interest rates, keep the amount of your mortgage low, or get out of PMI (Private Mortgage Insurance.) This loan is often chosen when a homeowner refinances and is trying to reduce the new mortgage balance.
- Cash-Out Refinance Loan: The Cash-Out Refinance Loan is often used by homeowners faced with sudden financial obligations. It involves dipping into your home’s equity and cashing out a certain amount. By taking some home equity, you will experience a higher loan amount, often with a difference in the withdrawn amount. You may experience higher interest rates and monthly payments than the “Rate and Term” type of refinancing.
- Rate and Term Refinance Loan: This type of refinancing loan works well when you wish to change from an adjustable rate to a fixed rate. You can even save money on monthly payments. The Rate and Term Loan is also good for when you want to change the interest rate, long term, or both, but you don’t want to change the loan amount.
How to Refinance your Mortgage
- Have a goal. Think about what you want to do? Do you want to reduce your monthly payments, or even try to shorten the term of your mortgage loan?
- Look around for the best rates for mortgages. Your mortgage broker can help you find the best rates. Don’t forget to look at fees as well.
- Apply for a mortgage when you have three to five lenders. Submit all the applications you want as long as you do it within a two-week period. Why? By doing this, your credit score will have had minimal impact.
- Pick a mortgage lender you trust. Find a mortgage lender you like or have experience with. After you apply, He or she will provide a Loan Estimate. Once you have all the different estimates, compare them, and pick the best offer. The estimates will even tell you how much you will need for closing costs.
- Lock in the Interest Rate you want. You should lock in your interest rate so the interest rate won’t change or be altered during the set period of time. You will work with the mortgage lender to close the loan before the rate lock expires.
- Close on the loan. When you close on the loan you pay closing costs. These will be listed in the Loan Estimate and the Closing Disclosure. Very similar to closing on a purchase loan, you are just closing on a refinance loan.
When it comes to refinancing, you need to know if it is the right thing to do for you. Speak to your mortgage broker and do some research before diving in. Refinancing can help you, but you want to be sure it needs to be done. Contact us today, and let us answer your questions. We can help you get another step closer to your mortgage goals.