When to refinance a home loan is a question that every homeowner asks themselves at some point in time. Refinancing is the process of obtaining a new mortgage loan that pays off the original loan. There are many benefits to refinancing your home. However, refinancing also has its disadvantages. There are many factors that need to be considered carefully before deciding to refinance. And timing is an important one when refinancing your home.
Refinance Loans Types
Generally speaking, there are two main types of refinance loans.
Rate-and-term refinancing allows you to refinance the remaining balance of your current loan for a lower interest rate or cheaper monthly payment. A cash-out refinance allows you to receive cash back in your pocket that you can then use for other purposes. Most people refinance their homes in order to get a lower rate or monthly payment. However, there are other situations when refinancing makes sense.
Some Ideal Scenarios in which Consider Refinancing a Mortgage
You may consider refinancing if:
- Your credit score or income has increased substantially, you may be able to lower both your monthly payments and interest rate by refinancing.
- You want to switch from an adjustable-rate mortgage to a fixed mortgage. Conventional loans that are required to carry private mortgage insurance, can typically drop the insurance during the refinancing process if their current loan-to-value ratio has reached 78%.
- If you are struggling financially or you need costly home repairs, refinancing would allow you the opportunity to use that money where they need it the most.
Costs of Refinancing
Refinance loans are not free. There are closing costs associated with every refinance loan can total thousands of dollars. One important step before deciding to refinance is to calculate the break-even point. The break-even point is the time that it takes for the loan to pay back the cost of refinancing. For example, if a loan has $3,000 in closing costs, but is saving the homeowner $100 per month, it will take them 30 months to break-even. Some experts say that a drop of even an eighth of a percent can save thousands of dollars over the life of the loan.
With a mortgage refinance calculator, users can enter information such as their current loan information such as term, interest rate, payment amount, and balance. After entering all required loan information, users would then enter the terms of their new loan to calculate their new monthly payment amount.
When to Refinance
When to refinance your home loan can be a challenging decision. Are certain times of the month or year better than others? The short answer is yes. Choosing the right time to refinance can be the difference in saving a few thousand dollars or saving tens of thousand dollars. Lenders have monthly, quarterly, and yearly quotas that they must meet. Few people can keep the same sales momentum going all month.
The last two weeks of the month are normally when loan originators are heavily focused on obtaining new loans in order to meet their quotas. This may benefit the borrower because some lenders may lower the interest rate or waive some lender closing fees in order to close enough loans to fill their quota. Generally speaking, the last two weeks of the month is the best time to refinance your mortgage. The last month of the quarter, March, June, September, or December, are the best times of the quarter to refinance. Determining the best time of the year to refinance a mortgage can be a little trickier. Loan officers are typically more aggressive to close new loans during the fourth quarter in hopes of finishing the year strong and generating a larger performance bonus. Due to loan officers scrambling to close as many loans as possible during the fourth quarter, this time of year is typically the best time for homeowners to refinance.
Interest rates can fluctuate daily. Homeowner should always compare rates from multiple lenders before refinancing their homes to make sure that they are getting the best rate possible. When to refinance your home loan can be a tricky decision. However, with a little extra consideration, homeowners can refinance their loan to get the loan that works best for their situation. This link will provide the current interest rates for the four basic types of mortgage loans.
In summary, when to refinance your home loan comes down to good timing. However, there are other things to consider when refinancing. From your personal loan situation to the benefits you are hoping to achieve, as well as the time of the year. All can have major impact on the decision to refinance.