Selecting the Most Ideal Time to Refinance
A number of factors can influence your decision of refinancing at a certain point of time. Thus, selecting the most ideal time to refinance the mortgage on your house isnt as simple as it appears to be.
Economic Environment
The current state of the economy is an important factor in selecting the time for a mortgage refinance.
A number of fiscal issues influence the direction of interest rates. When consumer spending levels are high, prices rise in keeping with the laws of demand and supply. At such times, the government boosts interest rates to bring down the inflation rate. As a rule, when the rates of interest rise, consumers spend less. The resulting drop in demand therefore causes prices to fall.
On the other hand, when consumer spending is notably slow, the government may decide to drop interest rates, to persuade consumers to spend more. For a lot of people in different situations, when interest rates fall due to a drop in consumer spending, it is a good time to refinance and take advantage of the benefits of lower interest rates.
Your Credit Score
Before you apply for a refinance mortgage, examine all your credit reports from the three main credit agencies. Make certain that the reports contain correct information about your credit rating. If there are any mistakes in your credit reports, especially those that are likely to negatively influence your credit, correct them before you apply for financing.
If you know your credit score when you go to potential mortgage lenders, they can generally give you a good idea of what type of interest rate you could get with a refinance mortgage. This can save you a lot of time, pointlessly filling out paperwork if you arent likely to be eligible for a better interest rate than the one on your current mortgage in the first place.
Age of Current Loan
Mortgage lenders dont look favourably on borrowers who refinance too often. Typically, you should keep a mortgage loan for at least four years before thinking of refinancing.
Bear in mind that there are closing costs connected to refinancing your mortgage loan. If you have taken your current mortgage quite recently, the savings you get from a tiny drop in interest rates might not offset the expenses related with closing the loan.
Additional Considerations
It may be worthwhile to refinance if there has been a considerable rise in the market value of your home. If you need money for a major purchase, or you are paying a high interest rate on the debt on your credit cards, automobile loans, or some other type of debt, it would be wise to refinance and take equity from your home to pay off those other expenses.
If your financial situation has changed appreciably in a positive way, since you took your original mortgage, you may want to consider refinancing. If you have got a considerable raise or completed credit rehabilitation, you may be eligible for a better interest rate now, regardless of the economic environment.
In Conclusion
Refinancing will only be worthwhile if your interest rate is going to drop by 2% or more. In addition, be certain that you know all of the costs associated with refinancing. Is there a penalty for early repayment of your current 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.
|
All material © Moneysorter Ltd 2006
