The Right Time to Refinance

Deciding upon the best time to refinance the mortgage on your home isnt as straightforward as it seems. Current interest rates arent the only issue that contribute towards whether or not refinancing is right for you at a certain point in time. Many factors play a crucial part in whether or not the best time to refinance is now or later.

Economic Environment
The economic environment plays an import part in whether or not it is a good time to refinance your home mortgage.

A number of fiscal issues have a bearing on the direction of interest rates. When consumer expenditure levels are high, prices go up according to the laws of demand and supply. During such times, the government boosts interest rates to reduce the rate of inflation. As a rule, when the rates of interest go up, consumers spend less. The resulting drop in demand therefore causes prices to drop.

Then again, when consumers spend less, the government may bring down interest rates to encourage customers to spend more. When interest rates drop, it is a good time to take advantage of the lower interest rates and opt for a refinance loan.

Your Credit Score
Before you apply for a mortgage refinance, study your credit report from the three main credit bureaus, Experian, TransUnion and EquiFax and make sure that the reports contain accurate information. If you find any mistakes in your credit reports, especially ones that could have a harmful impact on your credit, get them set right first and then apply for financing.

If you know your credit score when you go to potential mortgage lenders, they can generally give you a good idea 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 in the first place.

Age of Existing Loan
Mortgage lenders do not approve of borrowers who refinance frequently. As a rule, once you have taken a mortgage loan, you should wait for at least four years before looking at refinancing.

Note that there are closing costs connected to refinancing your mortgage loan. If you have taken your current mortgage quite recently, the savings you get from a tiny fall in interest rates might not offset the expenses related with closing the loan.

Other Factors
You could think about refinancing if the market value of your home has risen by a considerable extent. 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, it can be very beneficial to refinance and take equity from your home to take care of those other expenses.

If your financial status has changed significantly in a positive way, since you got your previous mortgage, you may want to consider refinancing. If you have received a large raise or completed credit rehabilitation, you may qualify for an lower interest rate now, regardless of the economic environment.

Rule of Thumb

Make certain that you are aware of the full cost of refinancing your home. Refinancing is worthwhile only if your interest rate is going to go down by 2% or more. Also be certain that you know all of the related refinancing costs. Will you have to pay a penalty for early repayment of your present loan? Are you aware of the closing costs? Always do your homework in advance to be certain that your lender is giving the most optimum interest rate and closing cost terms.

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