Finance 101: When Should You Refinance?

Refinancing an existing mortgage is an option that is often neglected by most home owners. The thought of going through the research and finding out if its right for your situation can be unappealing. What most families don’t realize is that if done correctly and with a good mortgage lender the refinancing benefits can yield immense benefits and save a lot of money each month. In many cases mortgage refinancing make a lot of sense. But the most important factor that you should determine is the timing and market conditions. If the timing is not ideal you may not maximize the most of your refinance. It is always suggested that before refinancing you must put some time to research and consult with a mortgage professional to see if the current state of the market will benefit your situation.

Once you have determined that it is a good time to refinance, it’s important to understand how it could benefit you and your family. For most families in the current market refinancing home loans can lower mortgage interest rate, however, you can also consolidate debts or get rid of an adjustable rate mortgage. Below are details of what goals you can accomplish.

Refinancing Goals:

  1. Reducing interest rate: A refinance doesn’t pay off the money you owe; it reconstructs it, ideally at a lower interest rate and/or a different loan term than the present mortgage. The most common goal of the refinance is to reduce the interest rate. But there are also options for the home owners to extend or lower the mortgage term.
  2. Debt consolidation: By consolidating debt it combines two mortgages. For example, if you combine your first mortgage and a second home mortgage. In some situations debt consolidation can also combine other debts with your existing mortgage.
  3. Refinance adjustable rate mortgage: Change an existing adjustable rate mortgage to a fixed term. Many home owners refinance as they want to get rid of the adjustable rate mortgage because of the cost fluctuation.

When to Refinance and Why:

  1. If the current mortgage interest rates are at least one point less than your existing mortgage rate, then refinancing would make sense. If the interests are lower than two points, then refinance is highly suggested.
  2. If you have 20 percent or more equity in the home, then refinance is the thing for you. This will reduce the Private Mortgage Interest that you are paying in the each month. PMI is a kind of insurance that is required for many types of loans. If you have 80 % or more share on your property, then by refinancing you can drop the PMI $70 to $150.
  3. If you have an adjustable rate mortgage and negative amortization or interest only loan that is due to reset, then it is an ideal time for you to refinance.
  4. If you have to pay one time large sums like medical bills and tuition fees, then refinance could be a good option to help consolidate those debts.

When it comes time to refinance your mortgage, contact a trusted mortgage lender to discuss you mortgage options. It is always a good practice to discuss your options and compare the services with the lender you choose. A mortgage professional will be able to help you determine if it’s the right time for you to refinance depending on your situation. If they find that its ideal for you to refinance, they will also be able to help you determine the right program for you.