Deciding on the Best Time to Refinance

Deciding upon the best time to refinance the mortgage on your house isnt as simple as it seems. Present interest rates arent the only issue that play a role in your decision to refinance at a certain point in time. A variety of factors play an important role in deciding upon the best time to refinance.

Economic Environment
The current state of the economy plays an import role in helping you decide whether or not the current time is a good time to refinance your home loan.

There are many economic factors that can affect interest rates. When consumers spend more, the economic laws of supply and demand cause prices to go up. Therefore, to control inflation, the government increases the interest rates. When interest rates move upward, there is a decrease in consumer expenditure. This decrease in demand leads to a decrease in prices.

Then again, when consumers spend less, the government may bring down interest rates to persuade customers to increase their expenditure. When interest rates drop, it is a good time to take advantage of the lower interest rates and opt for a refinance loan.

Your Credit Score
Before you apply for a mortgage refinance, examine your credit report from the three main credit bureaus, Experian, TransUnion and EquiFax and make sure that the reports contain correct information. If you find any mistakes in your credit reports, particularly ones that could have a damaging impact on your credit, get them fixed first and then apply for financing.

If you tell your credit score to prospective mortgage lenders, usually they should be able to give you a hint of the interest rate you could receive with a refinance mortgage. With this information, you can avoid filling out paperwork needlessly if you it is possible that you will not be eligible for a better interest rate than the one on your existing loan to begin with.

Age of Existing Mortgage
Mortgage lenders are not in favour of borrowers who refinance too often. As a rule, once you have taken a mortgage loan, you should wait for at least four years before thinking of refinancing.

Do not forget to consider the closing costs connected with refinancing your mortgage. If your loan is not too old, the expenses related to closing the loan may not be offset by the small savings that you get from a small drop in interest rates.

Additional Considerations
If the market value of your home has gone up by a considerable extent, it may be prudent to refinance and take equity from your home. You could utilise this to cover your other expenses, for example, if you need cash for an important purchase, or you have high interest debt on credit cards, car loans, or some other type of debt.

You may consider refinancing, if your financial status has significantly improved since you took your initial loan. If youve got a huge increment or completed credit rehabilitation, you could liable to receive an enhanced interest rate, no matter what the state of the economy.

Rule of Thumb

Refinancing will only be worthwhile if your interest rate is going to decline by 2% or more. Also be sure that you know all of the costs related to refinancing.

Is there a penalty for early settlement of your present loan? Do you have any idea of the closing costs? Always shop around to make sure that your lender is offering the best available interest rate and closing cost terms.