When is the Best Time to Refinance?

A refinance may occur when a person reviews the terms of their mortgage and needs a new agreement. They may want to lower their current interest rate, change their payment dates, or modify their loan terms to reflect the current economy. A refinance is when a new loan replaces the loan that you are currently paying. Depending on the loan type you have, you may be able to get a new interest rate, new repayment term, or a different principal balance.

There are two types of refinancing:

Term and rate refinance

With this type of refinancing, you can change the current interest rate or the payment term. Increasing the payment term will allow you to pay a smaller payment per month while choosing to make larger payments will help you save money on interest. This type of refinancing will not change the amount of money you originally borrowed.

Cash-out refinancing

This is when you take out a new loan in order to withdraw cash out of your home’s equity. Your home’s equity is the amount of money you have deposited toward your mortgage payment, plus the value your home has appreciated over time. This type of refinancing lets the borrower withdraw that equity and use it to pay off other types of debt, do home improvements or take a dream vacation.

Before applying for a mortgage refinance, consider the following factors:

• Credit score – just like when you originally applied for a mortgage, you will need a certain credit score to qualify. Lenders will do an analysis of your credit history and current score.
• Equity – this refers to the equity in your current home. Lenders normally require that the equity in your home be greater than the cash you need to withdraw.

When is the best time to refinance?

• Lower interest rates – During the years that you commit to paying off your loan, interest rates may vary. The best time to apply for a refinance is when the current interest rate is lower than what you are currently paying.
• Pay less each month – If you need to pay a smaller monthly payment, this may be a great time to refinance. This will give you a loan with a longer term and a smaller monthly payment.
• Pay for unforeseen events – If you need money to cover emergencies or large expenses, a refinance can help you cover these debts.