The Best Time to Refinance Your Mortgage

The best time to refinance a mortgage varies from person to person. The amount of time you plan to own the home, your current interest rate and repayment terms, the type of mortgage you have, and interest rates you quality for should be taken into consideration before refinancing your mortgage. If you plan to own the home for a long time, you may refinance your mortgage several times to qualify for the best interest rates and loan terms.

Definition

If you own a home, you can refinance your mortgage with the lender your currently have or with a new lender. When refinancing your mortgage, you will be taking out a new home loan with a lower interest rate to pay off the old home loan. This should reduce your monthly mortgage payment.

Benefits

Benefits of refinancing include a lower monthly payment, lower fixed interest rate, ability to turn an adjustable rate mortgage into a fixed rate mortgage, ability to build home equity at a faster pace and the ability to repay the loan in less time.

An Adjustable Rate Mortgage (ARM) adjusts with federal interest rates each month. This means that mortgage repayment amounts will vary from month to month. If you want the security of paying the same amount each month, applying for a fixed rate mortgage when refinancing.

Timing

Depending on how long you plan to live in the home, how much you owe and the interest rate you qualify for, refinancing your mortgage every four or five years can help reduce monthly payments and allow you to repay the mortgage in a shorter amount of time.

Consider current federal interest rates and the interest rate you could qualify for before refinancing your mortgage.

Also, consider possible penalties inacted by the old lender for repaying your mortgage loan early and new lender fees as well.

Compare rates and fees of at least three lenders before choosing one to refinance your mortgage.

If you've experienced a decrease in property value or if the home loan is almost paid off, it's recommended that you don't refinance the mortgage.

If you've recently taken out a home equity loan or if you don't qualify for anything less than a 30-year mortgage (if you've been paying your mortgage for 10 years or more, taking out a new 30-year mortgage will increase the number of payments), reconsider refinancing your mortgage.