When Should I Refinance

When should I refinance? That is a question that is going through many homeowners minds as interest rates continue to remain at historic lows. The possibility of dropping an interest rate on a 15 or 30 year mortgage by one percentage point or more could potentially save hundreds of dollars each month on a home.

Even if you have a current interest rate that is much higher than current rates, it does not necessarily mean you should refinance. In some cases, it could cost the homeowner more money in the long run than what they are saving. This is why it is important to ask - When should I refinance?

To help answer this question, take a look at a few things to consider.

If the intent is to lower your monthly mortgage payment, then refinancing may be a good option. There are however, several things you must consider before applying for this type of loan. Homeowners must factor in all refinance closing costs associated with a new loan. In many cases, these extra fees can run a few thousand dollars which could make refinancing a bad idea.

Ask your lender for an estimate on the associated costs of refinancing your mortgage. That way you can begin to calculate your break-even point on the new loan. If you plan to remain in the home for several years and you can recoup your costs, then you can easily answer – When Should I Refinance?

Another reason to refinance is to shorten the length of your mortgage. Switching from a 30 year mortgage to a 15 year mortgage is another reason why homeowners decide to refinance. With a lower mortgage rate and fewer payments, the interest that will be paid on a home will be drastically reduced.

If you are asking yourself – When Should I refinance? – this may be a perfect time. Just be sure to calculate the break-even point on your new mortgage to ensure that you are truly saving money. Shortening the length of the loan could save tens of thousands of dollars overall on your home.

Do you have an adjustable rate mortgage? Are current mortgage rates more than 1 percentage points lower than your current rate? Homeowners will refinance their existing mortgage to get more favorable terms.

Just keep in mind that while a lower rate or different terms on the loan may seem better than what you have now, it does not always mean you should refinance. Make sure to study and research your existing terms and compare them against the new loan. Educate yourself so that you have the power when dealing with a loan officer.

When should I refinance? That really depends on your situation. In some cases you may want to lower your monthly payments. Other homeowners may want to shorten the length of their mortgage. There are another group of homeowners that are just looking for more favorable terms to their existing mortgage.

Have you refinanced your mortgage? What was your reason?