It’s a good time to refinance your mortgage when rates are near rock bottom, right? In many cases, yes. However, to know when it’s the right time to refinance, it is important to determine how long you’ll stay in your home, know your credit score, and consider your financial goals. These factors along with current refinance interest rates will help you decide whether and when you should refinance.
Usually, people start thinking about refinancing when they see the mortgage rates fall below their current loan rate. But there are some other great reasons to refinance:
– You’re looking to pay off the loan faster with a shorter term
– You’re looking to tap a portion of your home equity with a cash-out refinance
– You’ve gained enough equity in your home to refinance your loan without any mortgage insurance
When the Federal Reserve lowers short-term interest rates, people assume that mortgage rates will follow. However, mortgage rates don’t always move in sync with short-term interest rates.
Keep in mind that mortgage refinance rates keep changing throughout the day, each day, and the rate you’re quoted can be lower or higher than a rate published at any given time. Your mortgage refinance rate is based primarily on the equity you have in your home and your credit score. As long as you have proof of steady income and your credit score is good, you’re more likely to get a competitive rate.
Will Your Savings Be Enough to Make Refinancing a Mortgage Worthwhile?
You’ll spend between 2% to 5% of the loan amount in closing costs, so it’s important to figure out how long it will take for monthly savings to recoup these costs (“break-even point” of refinancing a mortgage). For example, if your monthly payment drops by $100, it would take 30 months to break even on $3,000 in closing costs. You’ll lose money in the refinance if you move during those 30 months.