Home Finance When Is The Best Time To Refinance Your Mortgage?

When Is The Best Time To Refinance Your Mortgage?

by William Gist

Buying our place is a dream that many of us have, but given the current way of life most people have, achieving that goal takes years and years of hard work. A lot of people would agree that purchasing a home is like the “end goal” in life unless you are wealthy and you can do it whenever you want.

The good thing about this is that we already developed some methods in our financial system that allow people to get a loan from a bank and buy their first house. This is called mortgaging and in today’s article, we’ll explain everything you need to know about it.

A lot of people are wondering whether refinancing a mortgage is a good idea and if it is, when is the best time to do it? If you are looking for the answer, now’s the right time to learn more. Let’s take a look at what you should know.

1. When you want to get a slightly lower interest rate

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Different people have different opinions when it comes to how much is enough reduction of the interest rate which makes it worth refinancing. As a common rule, if you get more than a two percent reduction of interest rate by refinancing, then you have a really good deal and you should do it. However, some think that even a one percent reduction is a sometimes good enough reason to make this decision. These numbers may not sound like much but when you do the match it’s a big deal long-term.

It’s also worthy to mention that some people are sometimes being given an unfair interest rate based on marital status, national origin, disability, religion, or gender, which is highly illegal and should be spoken against. This falls into the category of mortgage lending discrimination. Some authorities can help you deal with this problem if you report it, a few examples being the CFPB (Consumer Financial Protection Bureau) and the US HUD (United States Department of Housing and Urban Development).

2. To reduce the duration (term) of your mortgage

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Interest rates vary from time to time, and when they are down, you as a customer have the option to refinance your loan for different terms. Without changing the overall monthly payment too much, you can refinance to reduce the time it takes for you to be debt-free. It’s important to do the math here as there are quite a lot of things to consider.

For example, if we’re talking about a home that costs a hundred thousand dollars, and you have a fixed 30-year mortgage rate, modifying this deal by refinancing from nine percent to five percent will make this a 15-year mortgage deal instead, which is a huge cut in time. Your monthly payment will increase only slightly, from $810 to $830-ish, which is acceptable. For some people, this reason to refinance is the most appealing.

3. If you have a financial emergency and need to pay off a debt

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You can raise funds for a large important purchase that you have to make, or pay off a debt you want to get rid of, by tapping into the home equity and getting financial support. This will require you to refinance your mortgage.

Data shows that one of the reasons why people are refinancing in the past year is because of this third reason. The covid-19 pandemic left a lot of people without money. ClearPath Lending is one of the many websites where you can take a look at some options if you are willing to refinance your mortgage shortly.

What you need to consider before refinancing is how long you plan to keep on living in that home, what your current interest rates are, and most importantly, will you be able to cover up those closing costs, and if yes, how long it’ll take you to do so.

4. When should I not refinance my mortgage?

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Please note that all of these procedures will involve something called a closing cost. If you are currently in a situation where you don’t have the extra money laying around and ready to be handed out for the closing costs, refinancing may not be a good idea.

Because consumers know how much of a hassle dealing with these costs are, some lenders started marketing a “no-closing-cost” scheme which is not what it looks like in a large majority of the time. “no-closing-costs” will only “bait” you to use their lending service, but in the end, their bank will still take up the losses by giving you a slightly higher interest rate. You are paying back the same amount of money one way or another, so be careful with these tricks and don’t fall for them. Opting for a no-closing-costs deal will simply not make any sense for your goal, which is to save money.

Finally, if you are not planning to stay in the home you’re refinancing for more than two years, it may not make any sense to make this move. Also, considering Private Mortgage Insurance (PMI) is a good choice in some situations, for example, if the equity of your home is less than twenty percent.

Conclusion

It’s not the easiest thing to decide whether refinancing your mortgage is a wise move or not, and not many people are properly informed about these financial options which are why we decided to come up with this article which hopefully simplified things for you.

Refinancing your mortgage can be done for multiple different reasons and in some situations, the benefits outweigh the drawbacks. We hope that you learned something new today and we’re thankful for the time you took to read this piece. Stay safe.

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