When is the Best Time To Refinance Your Home?

by Hank Coleman

It seems like every time you turn on the television news, read a newspaper, or listen to talk radio someone is talking about how low mortgage interest rates are. They spout about how home owners need to refinance now before the rates skyrocket. This is the lowest interest rates that we will probably see in our lifetimes, and it is true that no one knows how long they will last. But, it might not be the best time to run out and refinance your home mortgage. That is a big decision that should not be made lightly. There are other criteria that you have to look at in order to determine if refinancing is right for your situation.

Your Second Mortgage

If you have enough equity built up in your home to qualify for a refinance, it may make sense for you to refinance a second mortgage or a home equity line of credit (HELOC) if you have one. By combining your first mortgage with your second mortgage, you may qualify for a refinanced new loan with a lower rate of interest and maybe even a lower combined mortgage payment. Refinancing is also a good choice if you currently have a long-term loan such as a 30 year fixed rate mortgage and want to cut the term in half to pay your mortgage off more quickly. If there is a large difference between your two interest rates, you may find your payments very close to each other. Paying off your mortgage sooner is always a wonderful idea that has huge savings from interest payments decades down the line.

On Second Thought

Of course, you also have to be aware of certain instances where you think refinancing may be an answer but it really may not be the best choice or of any significant benefit to you in the long run. For instance, if you have been paying on your mortgage for a substantial length of time, then it is generally not a good plan to choose a lower refinancing rate. Because most of your money goes mainly towards the interest in the first years of the loan, refinancing will only save you a few pennies on the dollar later in the life of your mortgage. You make the most bang for your buck early in your loan’s lifetime when you pay the most interest and very little towards the principle.

Time Is Of The Essence

Another thing you have to think about when you are considering the option of refinancing is the amount of time you are planning to live in the home. It would not make much sense to refinance if you are planning to move, say, within the next five years. When you refinance, you are again responsible for the closing costs of the loan. Therefore, it is highly unlikely you will reap much if any savings after paying these fees. It is just a mathematical calculation (not a hard one) that you have to do in order to weigh the cost versus the benefits of a refinance. There are even calculators online that can help you crunch the numbers.

Refinancing may be a good option if you plan to stay in your house for quite a while. Like the television pundits say, the interest rates on home loans have never been lower in our lifetimes and we can expect to see them rise eventually from today’s lows. But, that does not necessarily mean that you should run right out and get yourself a new home loan. You should do the math. Crunch the numbers.

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