When Should I Refinance My Mortgage?

One of the best ways to manage your cash flow and save money is to refinance your mortgage. However, before you make your move, it's important to understand your situation as well as weigh the benefits of different refinancing options.

Why Do You Want to Refinance?

There are a number of reasons refinancing your mortgage makes sense. Because refinancing involves taking out another home loan to pay off your old mortgage, it's important to understand the implications. Here are some of the reasons that people decide to take this step:

  • Lower interest rate: A lower interest rate saves you money over time. If interest rates have dropped since you first got your mortgage, a new home loan can save you tens of thousands of dollars over the term of your loan. The commonly accepted rule of thumb is to refinance when you can get a rate that is at least 1% lower than what you currently pay.
  • Shorter loan term: Some consumers choose to refinance to a 15-year mortgage. A shorter loan term helps you build equity faster. Plus, the faster you pay off your loan, the more money you save in the long term.
  • Ease monthly cash flow: Refinancing to a lower rate and choosing a new 30-year term usually means a lower monthly payment. If you are looking to improve your cash flow, you can save between $200 and $500 a month (or more) by changing your loan. You can put that money to use elsewhere.
  • Fix your interest rate: If you've had an adjustable-rate mortgage (ARM), and you are worried that interest rates are about to rise, refinancing to a fixed rate can help you avoid changes to your payment in the future. This provides you with stability as you plan your budget.
  • Tap into your existing home equity: If you have already built up equity in your home, you can tap into that with a cash-out refinance. Refinancing your mortgage so that you borrow against what you currently own can provide you with cash to make a large purchase or consolidate debt.

Understanding your motivations can help you make the right refinancing decision for you. There are also online tools that can help you compare home loan offers and look for loans that offer lower fees (or even no fees) and offer you the best interest rate you qualify for.

Refinancing With Special Government Programs

While it makes sense to refinance when you are ready to make changes in your financial situation, you should also consider your access to special government programs. Since these programs are limited in time available, you might need to move up your timetable to take advantage of them.

The Home Affordable Refinance Program (HARP) is nearing its end. This program offers responsible homeowners the chance to overcome issues that aren't their fault. If your mortgage is serviced by Fannie Mae or Freddie Mac and meets other qualifications, you can go through a streamlined process, even if you owe up to 125% of the value of your home. This program is designed to help those who have seen their home values drop to a point where they have difficulty qualifying for more "traditional" refinancing options.

If you have a VA loan, you can use a special program through the Department of Veterans Affairs to refinance your property. This program is ideal for veterans looking to improve their situations by lowering their mortgage interest rate to save money each month -- and save money overall.

Before refinancing, make sure you know the realities of your situation. If you plan to move within two or three years, it might not make sense. You probably won't recover the costs involved with refinancing. Additionally, if you have experienced a financial catastrophe, such as a job loss, refinancing might not be enough to fix your issues.

Now is a great time to take advantage of near-historic rates. You might miss out if you don't make your move soon.

Get Mortgage Refinance Loan offers customized for you today.