When Is The Right Time to Refinance

By: Gary Ambrosh


Selecting when to refinance the loan on your home isn't as uncomplicated as it looks. The present rate of interest isn't the only issue to play a role in deciding whether or not refinancing is the proper choice at a given point in time. There are a lot of considerations that are just as significant.

Economic Environment
The present state of the economy is an influential factor in selecting the time for a mortgage refinance.

Many economic factors impact whether or not interest rates are likely to rise or fall. In times of high consumer spending, which causes prices to rise according to the economic laws of supply and demand, it is not unusual for the government to raise interest rates to reduce the rate of inflation. Normally, when interest rates rise, consumer spending decreases. The resulting decrease in demand results in a decrease in prices.

On the other hand, when consumer spending is notably slow, the government may decide to drop interest rates, to induce consumers to spend more. For many people in varied situations, when interest rates fall because of a reduction in consumer expenditure, it is a good time to refinance and gain from the benefits of decreased interest rates.

Your Credit Score
Before you apply for a refinance mortgage, study all your credit reports from the three main credit agencies. Make certain that the reports do not contain incorrect information about your credit status. If there are any mistakes in your credit reports, especially ones that are likely to have a negative impact on your credit, get them corrected prior to applying for financing.

If you disclose your credit score to potential mortgage lenders, normally they should be able to give you a hint of the interest rate you could receive with a refinance loan. In this way, you can avoid filling out paperwork unnecessarily if you aren't likely to qualify for a better interest rate than the one on your existing mortgage in the first place.

Frequency of Refinancing
Mortgage lenders are not in favour of borrowers who refinance too often. Usually, after taking a mortgage loan, you should wait for at least four years before looking at refinancing.

Note that there are closing costs connected to refinancing your mortgage loan. If you have taken your existing mortgage quite recently, the amount you save from a tiny fall in interest rates might not offset the expenses related with terminating the loan.

Additional Considerations
You may want to consider refinancing if the market value of your home has risen significantly. If you need cash for a major purchase, or you have high interest debt on credit cards, car loans, or some other kind of debt, it can be very beneficial to refinance and take equity from your home to take care of those other expenses.

If your financial situation has changed significantly in a positive way, since you got your original mortgage, you may want to consider refinancing. If you have got a large raise or completed credit rehabilitation, you may possibly qualify for an lower interest rate now, regardless of the economic environment.

Rule of Thumb
Refinancing will only be worthwhile if your interest rate is going to drop by 2% or more. Also be sure that you are acquainted with all of the costs related to refinancing.Will you be penalised for early repayment of your existing mortgage? Do you have any idea of the closing costs? Always do some research to ensure that your lender is offering the best available interest rate and closing cost terms.

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In a large number of instances refinancing can have a great positive outcome on your life. Whether it means getting access to equity or reducing your monthly repayments refinancing can achieve this. But done wrong, refinancing can be a great blunder. Make certain you do it right. Learn all you need to know about refinancing here.

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