For many of us who are mortgage holders from time-to-time we find ourselves asking, “When is a good time to refinance my mortgage?” Hardly a day goes by without noticing many lenders advertising tempting deals to entice you to refinance your mortgage. That temptation to refinance can be huge because depending on your situation, refinancing your mortgage can be beneficial in areas such as reducing the interest rate, shortening or extending the mortgage loan, and even by getting some extra cash flow happening by lowering the monthly mortgage payments. A word to the wise though, refinancing must be done with great caution because not every situation can have the desired benefits.
Before we can answer the question ‘when a good time to refinance a mortgage?’ we need to ask the question – why refinance? Here are some common reasons that may answer the ‘why’:
- Current lending rates have dropped and mortgage interest rates become lower than your current mortgage rate;
- You want to extend the repayment period of your existing mortgage in order to lower your monthly burden of a high mortgage payments;
- Your existing mortgage has a variable rate and you want to protect yourself from future rate increases by moving to a fixed rate mortgage;
- You can get a better mortgage interest rate now because you have improved on your credit history; or
- The debt load is too high and may be more than you can manage – consolidation may be the only answer to manage monthly payments.
Only if you are likely to gain some financial benefit out of refinancing your mortgage should refinancing be considered.
It is very important to carefully examine the refinancing option because there may be both opening and closing costs of a new mortgage and for your old mortgage. Sometimes switching costs can be exorbitantly high and by far outweigh the benefit of a lower interest rate. As well, if you are considering a new mortgage, it’s imperative to carefully study the terms and conditions to ensure that without a doubt, you are getting a much better deal.
Now you can answer the question, when should you consider refinancing your mortgage?
While everything mentioned above are great reasons for refinancing, there are other items to consider as well. When there is sufficient equity built up in the home, this may be a good time to refinance. This is very important because the greater the equity, there is a greater likelihood of getting a good interest rate on a refinanced mortgage.
Some more great advice is that you should also find out if the current interest rates are much lower than the rate you currently have. Only when the interest rates are at a much lower level than what you currently have, should you consider mortgage refinancing.
While refinancing can be a fabulous opportunity to get a better deal on your mortgage, it is crucial to get expert advice on whether it‘s really going to be beneficial. Another question to ask an expert as well is, ‘are there any available alternatives that may help your financial situation?’ Discuss your financial situation with a mortgage broker who is trustworthy and has experience. Only then can you get the correct answer to the question – ‘should I consider refinancing my mortgage?’