When rates of mortgage fall, many homeowners choose to refinance their loans. While refinance activity has risen dramatically over the last year, it doesn’t mean it’s the best move. Knowing when to refinance is key.
Generally, refinancing is a good decision if it will help save you money, build equity and pay off your mortgage faster. With rates dropping this low, even people with fairly new mortgages may be able to benefit from refinancing. Look at refinancing if you are able to lower your interest rate by half to three-quarters of a percentage point, which can substantially lower your monthly payment. Make sure that your total monthly savings offset the cost of refinancing. It may not be a great idea if you plan on moving within the next two years, giving you little time to recover the cost.
The question of when to choose to refinance isn’t just about interest rates. It’s about your credit being good enough for you to qualify for just the right refinance loan. Market factors determine mortgage interest rates, including yields on long-term treasury bonds, as well as the best rates and terms going to those with the best credit. Your financial goals, the time you plan on staying in your home, how much equity you have in the home, as well as your overall financial condition, are important factors when it comes to refinancing.
There are a number of ways to refinance your mortgage and finding the right loan depends on your goals. You may look at switching from an adjustable-rate mortgage to a fixed-rate loan that gives you a steady monthly payment.
The time it takes to refinance your mortgage usually depends on your lender as well as how long it takes to complete all the inspections, appraisals, credit checks and other formalities required. Many lenders’ websites let you read about their different loan products, compare their interest rates, fill out loan applications and submit the documents. Lately, technology has streamlined the mortgage process tremendously. With online applications, new mobile document-scanning apps as well as e-signatures, borrowers can now perform most tasks without printing even a single document. Most refinances can nowadays be closed within 30 days.