The most compelling reasons to refinance
are to lower monthly payments, get better terms and interest
rates, or to take out additional money. But how do you know
if it’s time?
Interest Rates
Some people take one look at the interest
rates and decide that it’s time to refinance. While the
current interest rates are a major part of the equation, it’s
not the final answer by any means. There are some additional
considerations. One of the major questions is what interest
rate you can qualify for. That’s right - just because
a lender advertises a specific interest rate on refinancing
doesn’t mean you’re going to get that rate. How
can that be? Because those rates typically apply only to those
who meet specific qualifications. Your credit score is usually
the main consideration. That means that if you’ve had
credit issues over the course of your current loan, it may not
be time to refinance. For example, a borrower who was in good
financial shape and took out a home loan may have gotten an
excellent rate at the time. Over the course of the loan, that
person missed a few payments and got behind on some bills, resulting
in a lower credit score. Though interest rates in general fall,
this borrower may no longer qualify for a great rate and may
actually be offered a significantly higher rate than the current
mortgage.
Now? Later? Never?
Other considerations are future plans and
current loan terms. If your credit has improved over the past
few years, you may now qualify for better conditions and rates.
You may be able to eliminate that variable rate mortgage or
negotiate other favorable terms. But keep in mind that you could
be required to pay for a new home evaluation, appraisal and
other closing costs. Those costs could add up to thousands,
meaning the interest rate would have to be significantly better
in order to recover the cost of refinancing. You should also
consider how long you plan to remain in that home. Are you expecting
a move for your company in the next year or so? If so, it may
not be time for a refinance loan. But if you can see some positive
points, it’s time to shop for the best rates and terms
you can find.
