When to Refinance a Loan

Here’s What to Consider

Interest Rate: What is the interest rate on the current home mortgage? It is above the current rate by half a point? One point? Two points? Obviously, if it is the same as the current mortgage's rate, it is probably not a good idea to refinance the loan. However, if there is a difference of two percentage points, it may be cost-effective to look into a new mortgage.

Type of Loan: Is the current loan a fixed-rate mortgage? Is it a variable-rate mortgage? Is it a 15-year loan or a 30-year loan? All situations are different, but homeowners who have Adjustable Rate Mortgages may need to switch to a fixed-rate option due to changes in employment status, marital status, or health status. Also, if there is suddenly more money available for monthly payments, it might be a good idea to switch from a 30-year loan to a 15-year loan.

Staying Around? For any person or family thinking about selling a house within the next five years that currently has a mortgage, refinancing may not be a good idea. Refinancing costs money, and the amount of money that might be spent on refinancing a mortgage may not be recouped in less than five years.

Refinancing Involves Fees

Refinancing a mortgage is never free, even if the mortgage lender agrees to pay all of the closing costs. Fees for various items are built into the cost of the loan, and the mortgage company always ends up making money. Why else would they fight for as many loans as they can get? However, if the loan will end up saving the homeowner money in the long-run, the fees may be worthwhile.

Paperwork

There is a lot of paperwork involved with refinancing a mortgage. A new mortgage should not be considered by anybody who is not willing or able to be organized enough to provide the mortgage lender with past paystubs, bank records and statements, and copies of federal tax returns from the past few years. Mortgage lenders are not apt to extend a loan offer without all of this information.

In addition to all of the paperwork that must be provided to the mortgage lender prior to the mortgage’s closing, many pieces of paper must be signed before the loan can be finalized.

Where to get Help?

If you are considering when to refinance a loan, it may be a good idea to start with the current mortgage lender. Either call them on the phone or visit their website to find out what the current interest rates are on their various types of loans. A representative from the company should be happy to discuss the differences between your current mortgage and potential refinanced loans.

There are also many mortgage lending websites on the internet that allow a person to view the terms and conditions of multiple mortgage loans all at the same time. This is a convenient way to look at what is available because most of the loans originate from different companies, so it’s easy to see which one is offering the best option. However, be aware that they are collecting Mortgage Loan Leads and any contact information you give them may be sold or distributed. When this happens, you can expect to receive calls, emails, and letters from months to come from Mortgage Lenders who are out to gain your business.

Why Refinance?

People refinance their home mortgages for many various reasons. Some of the most popular explanations are:

• To pull some equity out of the home in the form of cash
• To obtain the best interest rate possible
• To consolidate other forms of debt

Knowing when to refinance a loan is instrumental in maximizing one of your most valuable assets--your home.

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