Have you owned your home for awhile and you are wondering if now is the time for mortgage refinance? This is something that many people ask when they start looking into refinancing and it is a difficult question to answer because the market is always changing, each homeowner and their situation is different, and each home loan is different. It can be very difficult to give a blanket answer to this statement and past attempts at giving some rules as to when you should refinance have failed to apply to all situations.
The Right Time for Mortgage Refinance
When you are trying to decide if now is the time for mortgage refinance you will come across a piece of advice that says that you should only go for it if the interest rate on the new loan is at least two percentage points lower. This is a good rule of thumb, generally speaking, but it may or may not apply to you and your financial situation. This may have been the best advice 70 years ago but it may not be the best advice for everyone today because there are such a wide variety of loan programs out there to choose from.
If you are simply trying to reduce your monthly payment, then you may want to follow that piece of advice. The best way to reduce your overall monthly payment is by lowering your interest rate. Generally, if you can only lower the interest rate by one or less than one percent, the refinancing will not pay for itself because of the fees associated with the mortgage refinance. This is why you want to look for something that will lower your interest rate by at least two percent.
There are many instances when you don't need or can't follow the two percent rule. If you have an adjustable-rate mortgage you may not be able to undercut your current interest rate by two percent because the introductory interest rates for these mortgages are so low. What you have to do is try to gauge what your interest rate will adjust to and find a fixed-rate mortgage that will offer you an interest rate that is less than this and perhaps falls between the two interest rates. So, if you currently have an interest rate of three percent and you know that your rate is going to go up to nine percent, try to look for something that will offer you six percent. This will still offer you a savings over what your rate will be when it is adjusted and it will also give you peace of mind.
If you are looking at a cash out or no closing cost mortgage refinance you may again have to adjust what you have been told about seeking a loan with an interest rate that is at least two percent less than what you are paying now. When you go with one of these loans you are generally going to see a slight increase in the interest rate because of the convenience of this type of loan, but you should still see if you can lower it even one percent or even half a point as every little bit helps.
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