When Is the Best Time to Refinance a Mortgage?

  • November 14, 2014

The best answer to “When should I refinance?” is: that depends. People refinance their mortgages for a lot of different reasons. Here are several of the most common.
·  The #1 reason: lowering your interest rate. Mortgage rates have been low for some time now — and many homeowners are taking advantage. If the current interest rate on your mortgage is higher than today’s rates, and you plan to live in your home for at least a few more years, refinancing may be right for you. Be sure to consider the costs of refinancing when you make your decision.
·  Freeing up your home equity to pay down other debt. Some people get “cash-out refis” to get access to their home equity and pay down higher interest debt, such as credit cards. With a cash-out refi, a homeowner obtains a new loan that is larger than the current mortgage balance. The difference is paid to the homeowner in cash, which can then by used for any other purpose.
·  Locking in today’s low rates with a fixed rate mortgage. For homeowners who currently have adjustable rate mortgages (ARMs), locking in today’s low interest rates can be very attractive. Many experts believe interest rates will begin to rise again in the coming months and years. So refinancing from an ARM to a fixed rate mortgage now can offer homeowners stability and peace-of-mind.
·  Paying off a home equity credit line. Many people are refinancing to combine their current first mortgage with their home equity line of credit. Typically, these credit lines have had very low interest rates, such as 3% or less. But, they’re adjustable rates. And with the prospect of rising interest rates in the future, these homeowners want the security of locking down a low, fixed rate on their credit line debt today, before interest rates start to rise.
·  Buying other properties. Investment-minded homeowners are refinancing to free up cash to buy other properties. This approach raises tax and mortgage underwriting issues. For example, will the new home be a primary residence or rented out? These homeowners should consult their tax advisors before proceeding.
·  Addressing family situations. Sometimes, homeowners will refinance to address a change in a family situation, such as a divorce or giving cash to a family member in need. There are a lot of reasons why people may need to access to the home equity they’ve accumulated — and refinancing can be the right path to freeing up those funds.

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