When is the best time to refinance, and should I refinance at all?
These are questions homeowners ask once they start to wonder if they can get a better deal.
Refinancing is the process of replacing a current mortgage with a new one. It’s ideal for getting a lower interest rate and a shortened term length. It can also change a potentially unstable adjustable rate mortgage to a fixed rate one (or vice-versa, if you believe this is better for you). Refinancing helps you tap into the equity of a property if you need to finance another large purchase or consolidate debt.
There are costs involved with refinancing, so you must decide if refinancing is more expensive than staying with your mortgage. These costs include closing fees like Title insurance, attorney’s fees, and another other related expense. This total amount should be less than the amount you save throughout the life of your new mortgage.
The best reason to refinance is lowering your interest rate. Let’s say that over time, you’ve increased your credit score through faithful monthly payments, enabling you to get better rates for loans. By refinancing, you can take advantage of these lower rates to save hundreds or thousands of dollars.
Another common reason is to take equity out of the home for other purchases, such as cars. After an appraisal, a lender determines how much of that appraisal they want to borrow. This amount is subtracted from the loan’s balance. The remaining funds are given to the homeowner. Many individuals take this money and reinvest in their property, thus increasing its value.
To get the process started, contact your lender and understand the options best available to you. Understand the fees involved, details, and restrictions before signing anything official. Even if it’s not financially viable to refinance right now, you will still find out exactly how to plan and prepare a refinancing in the future.