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When to refinance your Mortgage
Posted May 29th, 2010
and last modified May 12th, 2011
There are many, many reasons a people choose to refinance their Mortgage. One of the reasons you should do it, is if you qualify for a lower interest rate. Compare the current interest rates against your current rate. Has the market dropped 1-2 points? If it has you should definitely consider refinancing your loan.
It’s obvious this is one of the most important factors to be considered when refinancing your Home Loan. You should only refinance your Home Loan if it is going to better your financial life.
How do you know if this is the right time to refinance?
Follow these steps to refinance your Mortgage:
- Watch Your Rate and Your Terms. As with any Mortgage Agreement, you should be sure to know and understand your current interest rates and possible future movements so you can weigh it against your future rates.
Interests rates rise and fall as the general economy demands. If money becomes too tight and public spending lessens causing the unemployment level to climb the Reserve Bank of Australia (RBA) might see it fit to lower the official rate. If on the other hand excessive spending starts to encourage the inflation level to ease upwards the RBA is more likely to increase rates to slow the economy down a little. There are many factors involved in causing the general economy to change direction. If you make your decision to refinance on interest rate movements alone you could find yourself worse off financially if the economy changes direction. The choice of refinancing to a fixed interest rate could see yourself eventually paying at a higher rate, if the official rate were to begin falling. - You can apply for pre-approval when refinancing. Be sure to assess each bank or Home Loan Product against the other to assist with your decisions.
- It is very important, especially if you are refinancing to consolidate debt, to not allow yourself to fall back into debt again after giving yourself a fresh start. Refinancing might serve to get debt collectors off your back in the short term but you must remember that a home loan is a long term commitment and you are in it for the long haul. Refinancing your home loan is a great way to put your debt behind you as you will only be paying the debt off at home loan interest rates that are well below that of personal loans and credit cards.
- Take the life on the Loan into consideration. If you choose to make your new loan shorter, for example a 20 year loan instead of a 30 year loan, you can increase your chances if being financially secure when you retire. You can also find your self paying less interest as your payments will be increased and condensed as opposed to your last loan. The longer the term of the loan, the more interest you will pay on the loan.
- Avoid drawing Equity! Life happens, and as a result people spend money. Some people use their equity for weddings, bills, or tuition payments. Remember this – Every time you draw money from your loan you are extending the life of the loan which means more interest and of course, it means a less chance for you to refinance. This is because the money you draw from your loan may affect your chance to qualify for a lower interest rate.
- Think about the amount you want to refinance for. This may a chance for you to draw on some equity – if you are currently ahead if your repayments. You can use the additional funds for renovations, school fees or even a holiday.
- Consider the costs of changing Home Loans. Consider your current lender. Find out what the exit fees consist of, and consider that amount when choosing to refinance. You may even ‘accidently’ be letting them know that you are shopping around for a better deal and they may have some advice as to how you can save money in your current loan.
- You also need to think about how long you plan to stay in your house. You may be thinking about up-sizing or down-sizing wither way – If you plan to sell in the next three or five years, refinancing your home may not be a financially savvy move depending on the affects of the costs of closing you may have to endure.
The best time to refinance your mortgage is not easy to determine.
The time to refinance largely depends on the reasons why you are personally refinancing as an individual, not as a general advice given to all home buyers. Therefore you yourself must give it a lot of thought and some of the following points might be found useful in this sense:
- Know what it is that you are trying to achieve. For instance consolidating your debt does not pay your debt off, it simply allows you to pay it off over a longer term at a lower interest rate.
- Reducing your interest rate is the most common reason given for a home owner refinancing. This is best achieved by taking the loan out over a longer term such as 30 years thereby reducing your monthly repayments.
One of the best ways to save money and avoid a lot of ‘closing fees’ and ‘exit fees’ is to remain with your current lender but change to a new Home Loan product. You might find yourself saving time, paperwork, money and of course, stress so before you make any major financial decisions, enlist the help of Home Loan Finder to compare your options.
Related posts:
- Interest Only Refinance
- Cash Out Mortgage Refinance
- Bad Credit Mortgage Refinance
- Best Refinance
- House Mortgage Refinance
- Refinance Options
- Best Refinance Company
- Home Loan Refinance Rates
- When to refinance Your mortgage
- Refinance Fees
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