Refinancing a home loan can open incredible new possibilities. And there are many different reasons people choose to do so. But when it comes to home loans, timing is everything, and everyone’s situation is different. Refinancing under the right circumstances means bigger and better benefits. Read on to find out more about when is the right time to refinance a home loan.
The Right Time Can Depend On Your Reasons and Goals
There’s no one way to use a refinance loan. The goals can include:
- Lowering your monthly payment
- Removing private mortgage insurance (PMI)
- Paying less interest over time
- Taking advantage of your home’s equity (as with a cash-out refinance)
And these are only a few examples.
So, why are you considering refinancing at this moment? Your answer could tell you when the right time is.
When Is The Right Time To Refinance For Lower Payments?
Lower monthly payments are a major incentive for many homeowners to refinance, and for good reason. If you refinance when interest rates are lower than your original mortgage or refinance to extend the term of your loan, you can net serious savings. How do you figure out what your new monthly payments might be? Use a mortgage calculator tool. Just enter the amount you want to refinance, the new interest rate, and the new loan term.
If there’s a positive, significant difference, now could be the perfect time. According to the experts, your monthly payments should go down by at least 1 percent. If it’s not quite there yet, you should probably wait.
What About Refinancing Costs?
There may be closing costs for refinancing. This amount will depend on your lender. Usually, the cost is 2 to 5 percent of the principal of the loan. Though, exact costs can vary depending on factors such as where you live. You may also be able to opt for a no-closing-cost option, so do your research.
Whether you’re prepared to pay for closing costs may be another factor in knowing when it’s right to refinance.
Change To A Different Type
Because refinancing is essentially getting a new loan. It may benefit you more to switch to a different type of home loan. For instance, you may wish to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa.
Another change might be to shorten the term of your loan and pay off your loan faster. For instance, you can refinance from a 30-year loan to a 15-year loan. This would increase your monthly payment, but for some, it’s worth it.
What Are Your Plans?
How do you know if now is the right time to refinance? Keep in mind that it partially depends on your future.
Do you have plans to sell the home soon? After you refinance, it can take some time to break even on the money you’ve invested in the refinance. If you sell too soon, you may not be able to profit from the benefits of your refinance or make up for the closing costs you paid.
Instead, experts recommend refinancing if you’re planning to stay in the home for a while so that you don’t lose money. You can find out when you’d break even by dividing your closing costs by how much you’d save each month.
Taking Advantage Of Home Equity
Knowing your future plans also helps you take advantage of your home equity. A cash-out refinance allows you to take money out of your equity for immediate costs. If you need cash right now, refinancing might be a good option for you.
For instance, one reason many choose to refinance is to use equity for home improvements or repairs. In this case, now may be a great time to go for a cash-out refinance.
You can choose to use home equity for education costs or to pay off debts. Depending on how time-sensitive these needs are, it could be a major factor in when the right time to refinance is.
Taking Advantage Of Mortgage Rates
It may be the right time to refinance when mortgage rates drop to new lows. Refinancing allows you to take advantage of those by essentially getting a new loan with lower rates. This allows you to save money on interest over the life of the loan.
Of course, you’ll need to complete the refinance process before rates rise. One way to do so is by locking in for 30 to 60 days. It helps to be as informed as possible about the mortgage rate forecast. Luckily, there are helpful resources out there, such as this Forbes guide.
How Long After Closing Can You Refinance?
In most cases, you have to wait at least six to seven months. But it can depend on the lender. Some allow you to refinance almost immediately. Others will want you to wait even longer, even 24 months.
Can You Refinance A Home Loan More Than Once?
For many individuals, the right time to refinance is a one-time decision. But technically, there is no limit on how many times you can do so.
What If The Right Time To Refinance Is Still Unclear?
For a big decision like this, don’t be embarrassed to ask for help. Getting expert guidance can save you from refinancing at the wrong time—or help you strike when the iron’s hot. It’s important to partner with the right lender to ensure you’re making the best decision about when is the right time to refinance your home. Choosing an experienced and expert lender such as Solarity Credit Union could be the first step in deciding if refinancing your home is the right step for you.
If you’d like to know more about the right time to refinance, you can find plenty of helpful information on Solarity’s website. This includes much more about all your home loan options. And they have many useful resources, such as their home loan calculator and expert Home Loan Guides. Learn more and make the right decision today.