When is the right time to refinance your mortgage?
By Mark Lambie
You've heard that interest rates are down and you think it could
be time to refinance your existing mortgage, but the entire loan
application process was so exhausting during the initial loan that
you aren't sure it's worth the hassle. You could very well be right,
but there are some things you can do to help decide whether it's
time to refinance your mortgage.
The first thing you need to verify is the interest rate for your
existing mortgage and the interest rates being offered across the
board for new loans. If there's not at least a one and a half to two
point difference, you're probably not going to be significantly
better off to refinance your mortgage. Here's why.
Remember those closing costs on your initial mortgage? You
probably paid for an appraisal, perhaps a home inspector's
services and even a survey if you have rural property. Depending
on how long it's been since your original loan, you may be faced
with having all those processes repeated. Especially if you are
going with another lender, have had the existing mortgage for at
least two years, have made major modifications to your home or
property, or have seen some significant variations in property
values in your area, you're probably going to be required to have
an appraisal at the very least. While it's not a huge cost for an
appraisal, comparing that with the amount you're going to save on
a slight drop in interest rates could show that it will take months to
recoup that expense. Don't forget that you'll likely have some
additional closing costs from the lender on the new mortgage (you
are, after all, taking out a new mortgage even though you have an
existing loan) and you may even be facing penalties for paying off
your existing loan early. Weigh those costs against what you
expect to save before you take this step.
So does that mean that you should never refinance an existing
mortgage? Actually, there are plenty of opportunities when
refinancing your mortgage makes good financial sense. If you've
significantly increased the value of your home or have been paying
for several years, you may have enough equity to qualify for a
better interest rate. You may also lower monthly payments or
refinance to make improvements. In the end, it's up to you to
weigh the costs of refinancing your mortgage and decide if the
time is right for you to take this step.
About the Author
Mark Lambie is the founder of The Loan House a website that allows consumers to quickly and easily get free mortgage quotes and mortgage information.
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