Is Refinancing a Home Loan a Smart Step Now?

As the mortgage loan and housing industry is settling a bit in recent times, many mortgage holders are wondering when it is safe to apply for a refinancing deal in order to secure a lower interest rate than they currently have. Many are wondering when the right time is to make the move and are concerned that the slashing of credit across the nation will be a factor in the loan process. The reality about refinancing is there isn’t a perfect answer for every situation. It can make good financial sense to refinance but it will also cost money to do so. If you can not financially afford to refinance, you will not be saving money at all.

When To Refinance

If you have an adjustable rate mortgage that has increased to a higher rate, refinancing may be a good option for you. Adjustable rate mortgages can have an advantage when rates are down but when rates are up, it seems in general a fixed rate mortgage is a better option for the long term.

If you already have a fixed rate mortgage, meaning your rate over time never changes, you generally have the advantage in the stability of the rate. However, when rates do drop, a fixed-rate mortgage can be a drawback. If you consider your present fixed rate with the current rates on the market, you may want to consider refinancing if you are in the position to do so. If you are qualified and are able to lock in a lower fixed rate, your will end up saving money over the life of the loan.

What To Consider
As mentioned, refinancing a mortgage does not come without cost. In order to justify those costs, you will need to consider how long you plan on staying in the home. While you may be able to reduce your regular monthly payment by a few hundred dollars, the closing costs on the loan can be in the thousands. Can your break even over the life of the loan? If not, refinancing may not be the best option for you right now.

You also want to consider up front the amount of equity you have in your home. Since most lenders require at least 20% equity before you can refinance, you may not even be in a position to get a lower rate. Also, you may not be required to have the full 20% but consider that you will get the best deals with the higher percentage of equity you already have.

Finally, another consideration you will need to make before deciding if refinancing is for you involves the new terms of the loan. While you may have already made 10 years worth of payments on your mortgage, the new terms will likely incur another 30 year term, meaning you will have to start at the beginning again with the new loan. You can decide to switch from a 30 year loan down to a 15 year loan if the number of past payments made  makes that a possibility.