Are you thinking about refinancing your mortgage, but aren’t sure if it’s right for your situation? For many people, refinancing a mortgage is a smart move. In fact, it’s estimated that around 7.8 million homeowners could cut down on their mortgage payments with refinancing.
If you’re asking yourself, “When should I refinance my home?” you’ve come to the right place. Check out our guide to discover when to refinance your home mortgage.
Mortgage Rates Have Gone Down
Mortgage rates depend on a variety of factors, including inflation, market movements, federal monetary policy, the economy, and other global factors. Because of all that’s in play, their rates are bound to fluctuate.
If mortgage rates fall, you may be able to save money by securing a lower interest rate. This is something known as rate and term financing. In other words, you refinance your mortgage for one with a lower interest rate. Typically, the new mortgage will have the same term.
So, how much should you wait for rates to drop before you think about refinancing? A general rule of thumb is to refinance your mortgage when rates drop by one or two percent.
Additionally, you may want to consider refinancing your mortgage if you currently have a fixed-rate mortgage and rates are continuing to fall. In this instance, you may want to switch to an adjustable-rate mortgage. However, keep in mind that with an ARM the interest rate changes over time in relation to an index, so your rates can go up or down.
The Value of Your Home Has Increased
Another good reason to refinance your mortgage? The value of your home has increased.
If you opt for a cash-out refinance, this means you’ll take out a new mortgage that’s larger than your previous one. Then, you’ll receive the difference in cash.
For example, let’s say that five years ago you took out a $160,000 mortgage on a house that was worth $200,000, and you already made a down payment of $40,000. Then, after making regular mortgage payments for a while, you now owe $100,000.
However, due to property markups, the value of your home has now increased to $250,000. Because the house is more valuable, you may be able to refinance for a higher amount. For example, if you refinance for $120,000, then you can take the $20,000 cash difference and use it for other expenses.
Your Credit Has Improved
Last but not least, it may be time to refinance your home if your credit has improved. Your credit score plays a huge role in determining your mortgage rate, and generally speaking, the better your credit score, the lower your interest rate will be on your mortgage. So, if your credit score has seen a boost, it may be time to look into refinancing.
When Should I Refinance My Home?
Now that we’ve answered the question, “When should I refinance my home?” it’s time to decide whether or not it’s the best time for you.
If you have any questions about refinancing your mortgage, contact us today.