Refinancing a mortgage means the homeowner is getting a new mortgage to replace the original. There are a variety of reasons why homeowners choose to refinance, like to lower their interest rate, shorten their loan term, or remove their monthly mortgage insurance. No matter the reason, it’s important to ensure that it’s the right time for you to make this financial decision. So exactly when should you refinance your mortgage? Here are three elements to look for:
- Lower interest rates: One of the most common reasons why homeowners choose to refinance is to lower the interest rate on their loan. According to various industry experts, if you can lower your rate by even 1 percent then it is typically worth the refinance. With lower rates, you will not only have the opportunity to save on monthly payments, but you’ll also have the option to shorten your overall loan term without seriously increasing your mortgage payments. Of course, this shift depends on how much interest rates have dropped.
- Higher credit score: Your mortgage rate is highly dependent on your credit score, so it could be time for a refinance if your score has recently improved. Homeowners will typically qualify for the lowest rates if their credit score is around 720. Consult with a lender to see if this is the right option for you.
- Quick break-even point: The break-even point refers to the amount of time it will take for monthly savings originating from the refinance to offset the cost of the refinance. If you qualify for a low-cost or even no-cost refinance then you will hit the break-even point relatively quickly. When a quick break-even point is a possibility, then a refinance could be a great option for you.
Overall, refinancing can be a great financial decision if it’s done at the right time and for the right rate—and with today’s interest rates still relatively low, it could be a great time to discuss your options with a lender. For more information about when you should refinance your mortgage, or to learn more about home financing, contact one of our mortgage specialists today.