Everybody is interested in saving money and paying less each month. If you have a mortgage loan on your property a good way to save money is by refinancing your mortgage into a new, lower interest rate loan that has smaller payments each month, and fewer payments over time due to the decreased interest. But how do you know if it is a good time to refinance your loan?
Obviously the interest rate is an important factor in determining if it is a good time for you to refinance. If the interest rates have fallen far below the current interest rates on your existing loan it is a good time to consider refinancing. On the other hand, if you have an ARM (Adjustable Rate Mortgage) and the interest rates are going to increase, or are already increasing, your payment will also increase and it would be a good time to talk to a mortgage professional about your refinancing options.
But what other circumstances determine if it is a good time to refinance?
Determining whether it is a good time to refinance has as much to do, if not more to do, with your personal circumstances rather than what the mortgage market is doing.
For example, if you have signed a 3 or 5 year ARM (Adjustable Rate Mortgage) you were given an introductory interest term. At the end of the life of the mortgage loan (3 or 5 years) the introductory interest rate will change. If you know the introductory rate is going to change soon, you can get a jump on the coming higher interest rate, and refinance your loan into a new ARM with a new introductory interest rate, or into a new fixed rate loan with a lower interest rate, before you receive your first payment with the new higher interest rate.
If you are carrying mortgage insurance on your loan and you have built up enough equity you may want to consider refinancing. If you refinance into a new loan you can pay less mortgage insurance, which can save you a lot of money each and every month.
If you have a mortgage that is over $417,000 (the balance of your loan, not the property value) and you live in an expensive market, you can refinance from a non-conforming loan to a more desirable conforming mortgage. The maximum limits set on non-conforming loan were $417,000 but the rules have changed and now the maximum limit is $729,750. This rule applies to pricier markets.
You are now eligible for a FHA loan. Under the same rules that raised the maximum limit on non-conforming loans, the limit for an FHA loan is now being raised to 125% of a market's median price (up to $729,750). An FHA loan is desirable because they have less strict credit score requirements and you can qualify for an FHA loan with as little as 3% equity in your home.
Sometimes the decision to refinance is not based on the interest rate or the monthly payment.
An often overlooked benefit of refinancing your mortgage loan is you can use it to free up the equity in your home and convert the equity into cash. Say your child is going off to college, there is an illness in the family, or you simply want to renovate your property. If you refinance your mortgage loan, you can refinance the loan in terms that will allow you to use the cash available in your home as you see fit.
Establish why you want to refinance, consider the interest rates and talk to a professional in the mortgage industry to learn your options and use this to decide if the time is right for you to refinance your mortgage.
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