When Is It Time To Refinance Your Mortgage

refinance your mortgageYou made some really big purchases throughout your life – like your first car, a college education, or that fancy jewelry you always wanted. But none will be so heart-rending, stable and financially steep as buying your first house, your first mortgage. And as a homeowner, you may have heard the term re-financing without being aware of exactly what it means. To refinance your mortgage means paying off an existing loan and replacing it with a new one. Getting a different new loan for your mortgage can be a good financial decision in certain situations. So if you’ve been considering refinancing your mortgage, here are some things you should consider before making your move.


When Should You Refinance Your Mortgage


Your Credit Score Has Improved


A credit score is a number that shows how you manage finances and gives lenders an indication of whether or not you’ll be able to pay the money back. And improving your credit score is important for your financial future. The higher your credit score, the better as this can significantly lower your payments or interest rates on a refinanced mortgage.


Get Refinance Rates


Likely There Is a Lower Rate


Refinancing is indeed a popular option for many homeowners who want to pay less to provide more opportunities for considerable money savings. So if the rates are currently lower than what you are paying, you may want to consider this. Since you will be obtaining a new mortgage with a lower interest rate, this will be a chance to lessen your monthly payments, increase your equity at a faster rate and save your extra funds for something else.



Your Income Went Up


When you’re looking to refinance to a shorter loan term, an increase in income can be of great value. Turning to a shorter term mortgage can save you thousands of dollars in the long run. Bear in mind, however, that a shorter term means a higher monthly payment. So if you want to pay off your new loan as fast as possible, you should look for a mortgage with the shortest term at payments you can realistically afford.



Retirement Is Approaching


If someone is retiring from his/her job and there is an urgent need to reduce expenses, it may make a perfect sense to refinance his/her mortgage since monthly income may drop upon retirement. Especially if he/she has at least 10 years left on the current loan and the current interest rate is substantively higher than the new refinance rate. But it is always better to plan ahead and not wait until retirement. If you plan to retire soon, refinance now.


You’re Getting a Divorce


When you’re about to get a divorce, mortgage issues need to be addressed and taken care of if the two of you own a home together. Even if the divorce decree states that the husband will be responsible for the mortgage, this won’t remove the wife’s liability for the debt incurred. When the two of you signed the original mortgage papers, you two basically agreed to be jointly responsible for repaying the loan. The only way to take one name off is to have the loan refinanced in the spouse’s name only.



You Have a 2nd Mortgage with Variable Rate


Most homeowners have a first mortgage that is fixed with a variable rate home equity loan. If interest rates are low, one should consider consolidating those into one loan with a single monthly payment. The 2nd mortgage might be also get converted to a fixed rate so that the payment will not go up even if interest rates rise.



You Are Planning to Stay Long-Term


Refinancing only makes sense if you plan on staying in the house long enough to recover your costs, including bank fees, attorney fees, title insurance fees, and appraisal fees. If you plan to sell your house in a year or two, you probably should stay on your current mortgage. This move will likely only waste your time and money. Selling too soon after refinancing means you won’t live in your home long enough to capture the savings benefits of lower rates.


The Bottomline


There can be a number of financial dole when it comes time to  refinance your mortgage, but it’s important to work out your budget and crunch the numbers before you make a final decision. Refinancing can be an upright fiscal move if it condenses your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting debts under control.

Abby Whitmer

Abby Whitmer is an independent e-commerce business owner from California. She is also a finance advocate for Personal Loans Now and for multiple other websites about money management and tips about online business.

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