When Is The Right Time to Refinance
There are a number of factors that can have a bearing on your decision of whether to refinance or not. Thus, selecting the most perfect time to refinance the mortgage on your home isnt as straightforward as it appears to be.
Economic Environment
Your decision to refinance is largely influenced by the fiscal environment.
A number of fiscal issues have a bearing on the direction of interest rates. When consumer spending levels are high, prices go up in accordance with the laws of demand and supply. During such times, the government raises interest rates to reduce the rate of inflation. As a rule, when the rates of interest increase, consumers spend less. The resulting drop in demand therefore results in a dropping of prices.
On the contrary, in times when the economy is slow, a decision may be made to drop interest rates to encourage consumer spending. For a number of people in many situations, when interest rates fall due to a reduction in consumer spending, it is a good time to refinance and enjoy the benefits of lower interest rates.
Credit Matters
Prior to applying for a refinance mortgage, examine all your credit reports from the three main credit agencies. Ensure that the reports do not contain incorrect information about your credit rating. If you find any mistakes in your credit reports, especially ones that are likely to negatively influence your credit, correct them prior to applying for financing.
If you know your credit score when you approach potential mortgage lenders, they can usually give you a hint of what type of interest rate you will be eligible to receive with a refinance mortgage. This information can save you a lot of unnecessary time, filling out paperwork if you arent likely to qualify for a better interest rate than the one on your present mortgage to begin with.
Frequency of Refinancing
Mortgage lenders disapprove of borrowers who refinance frequently. Usually, you should keep a mortgage loan for at least four years before thinking of refinancing.
Remember also that there are closing costs connected with refinancing your mortgage loan. If you havent had your present loan for a long time, the savings you get from a tiny drop in interest rates might not offset the closing cost expense.
Other Factors
If the market value of your home has risen considerably, it may make sense to refinance and take equity from your home. You could make use of this to cover your other expenses, for example, if you need cash for a major purchase, or you have high interest debt on credit cards, car loans, or some other type of debt.
If your financial status has changed appreciably in a positive way, since you got your initial mortgage, you may want to consider refinancing. If you have received a huge raise or completed credit rehabilitation, you may possibly qualify for an improved interest rate now, regardless of the economic environment.
Rule of Thumb
Refinancing will only be worthwhile if your interest rate is going to drop by 2% or more. Also be certain that you are acquainted with all of the costs associated with refinancing.
Will you be penalised for early repayment of your current mortgage? Do you have any idea of the closing costs? Always do some research to ensure that your lender is proposing the best available interest rate and closing cost terms.
