The best time to refinance your home loan primarily depends on current mortgage rates, but there are other considerations. If lowering your mortgage rate is your only purpose in refinancing, a straight refinance is your best option. There are no guarantees that you'll get the lowest rate by chasing mortgage rates; your best bet is to refinance when you're ready and lock in the lowest rate available.
Best Time to Refinance: Things to Consider
How long to break even on refinance costs: An important consideration when refinancing your mortgage is how long you plan to keep your home. Refinancing costs reduce potential interest rate savings, so it's a good idea to calculate how long it will take to break even on refinancing costs before you'll start saving with your lower mortgage rate. If you plan to sell your home before the break-even point, you could stand to lose money on refinancing.
Mortgage insurance: If you have FHA mortgage insurance, you can refinance to eliminate the annual mortgage insurance premiums when your mortgage balance is 80 percent or less of your home's current value. You can determine this by dividing your current mortgage balance by your home's current value. For example, if your home is worth $200,000 and your mortgage balance is $120,000, your loan-to-value ratio is 60 percent. In this case, you could refinance to a conventional loan to eliminate FHA mortgage insurance premiums. Eliminating the cost of mortgage insurance will lower your mortgage payments and save money.
Refinance from an adjustable-rate to a fixed-rate mortgage: Compare your adjustable mortgage rate to current fixed mortgage rates. It could be a good time to stabilize your mortgage payments by refinancing to a fixed-rate mortgage. In some cases, your mortgage payments may be higher than with your current adjustable rate, but if you prefer a predictable monthly mortgage payment, refinancing to a fixed rate before your next mortgage rate adjustment may be for you.
Low or no home equity: The Home Affordable Refinance Program, or HARP, offers eligible homeowners the opportunity to refinance to lower mortgage rates even when they owe as much or more on mortgages than their homes are worth. The deadline for refinancing through the HARP program has been extended until September 30, 2017.
Refinance When You're Ready
There's no right time to refinance if you're not ready. Keep in mind that refinancing requires closing costs, and the cheapest way to deal with closing costs is to pay them in cash at closing. If you want to refinance but are short of cash, you can check out "no closing costs refinance" options, but you'll still pay closing costs. Your mortgage lender will advance the closing costs in exchange for a higher mortgage rate that will eventually reimburse the lender's advance. When estimating potential savings as compared to your current mortgage, remember to deduct estimated closing costs from your calculations. This can help you determine when to refinance based on estimated savings.
Do you want to refinance but have bad credit? The Federal Trade Commission encourages homeowners to shop and compare mortgage quotes. You may find that you can refinance to a lower mortgage rate and save money even after paying a higher refinance rate and/or additional fees. Ready to get started? Using Lending Tree's refinance calculator can help you estimate your new payment amount after refinancing.