Knowing When It’s Time to Refinance Your Home
Refinancing is the process of trading in your old mortgage for a new one that features a new interest rate and term. When you refinance your mortgage, the loan officer who grants you the new mortgage basically pays off the remainder of your old mortgage and provides you with a new mortgage- by refinancing the remaining amount. Another way you can think about refinancing is that you are “resetting your mortgage” – not getting rid of existing debt.”
When you’re considering refinancing, it is important to do your research and crunch out the numbers to make sure that the deal is better over time as opposed to being beneficial short-term. Interest is the silent killer when it comes to refinancing homes; so planning into the future and weighing out scenarios is essential when you’re considering refinancing. This being said, there are major benefits to refinancing with the top three being lower interest rates over time and the opportunity to reduce the term of your original mortgage through standard refinancing, and to acquiring cash from the home’s equity value to use on other purchases through cash-out refinance transactions.
So once you figure out that refinancing is for you, when exactly is the best time to refinance your Mortgage?
You plan on staying in your home for a long time.
Most of the time, when one refinances their mortgage, they end up extending the term of the loan. This means that you will be paying smaller amounts for a longer time. It is important to look at the savings compared to cost as well as how long you want to stay on your property. If you plan on staying for a while, and the numbers are right, refinancing is a good option to save money.
You want to shorten your mortgage term.
Refinancing your mortgage presents the opportunity for borrowers to reduce their mortgage term under reduced interest rates. As long as you’re able to pay the increased monthly payments (which vary from a little to a lot depending on the cost of the mortgage) this is a great option for people looking to pay off their loan sooner rather than later under ideal circumstances.
A year to a year and a half before you will be buying a home, do a deep analysis of your credit report. This will give you time to make minor changes to your score that can save you big bucks in the end when you start shopping for mortgage rates.
ALWAYS pay your bills on time.
This is a given! It is also important and make an effort to pay more than the minimum balance if possible.
Have a mix of credit.
Auto, credit cards, student loans, etc. – Lenders like to see a long and versatile credit history.
Keep a low balance.
On any given credit card try not to use more than 30% of your limit.
Start saving now.
It is ideal to try and aim to put a 20% down payment on your home, which requires a decent amount of cash upfront. Start bulking up your savings account now!
Don’t forget about closing costs!
Whatever you do- do not do these 5 things that will destroy your credit while looking for a mortgage!
When it is time to find a mortgage for your dream home, be sure to contact us so we can help make your dream rate a reality!