Is Now a Good Time to Think About Refinancing Your Mortgage?

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For awhile now homeowners have been putting on refinancing their mortgage because they have been told that it is just not the right time. As mortgage rates continue to drop; however, you may find that the time has finally come to refinance your mortgage.

Before you jump at the record low mortgage rates, consider your personal situation. Now is definitely an excellent time to refinance under certain circumstances. Consider how long you plan to stay in the home. In general, if you are planning to remain in the home for at least three to five years then you are a good candidate to refinance right now. That is because you should have ample time to make up the closing costs and then begin cashing in on the savings. The other critical factor that you need to consider is the loan value.

If you have a loan amount that is more than $300,000 then refinancing now could be a good option if your current mortgage rate is above 6.25%. You could still benefit from refinancing if your loan value is between $200,000 and $300,000 and your interest rate is 6.5% or higher. Even if your loan value is between $150,000 and $200,000 you could benefit from refinancing now if your interest rate is 6.75% or higher. If your loan value is $150,000 or less, you would generally need to have an interest rate of 7% or higher in order to benefit from refinancing now.

You do need to be prepared for the costs associated with refinancing. Those costs can vary widely depending on a variety of factors such as the loan value as well as the amount of the discount points related to the loan. Before you proceed with refinancing, you always need to make sure that you are aware of the closing costs that you will need to pay.

When you are ready to refinance, you should get the ball rolling by providing all of the necessary paperwork to the lender. This includes tax returns, paycheck stubs, W2s, bank statements and verification for all other income and assets.

Keep in mind that rates can and will fluctuate. Make sure that you do not delay in getting your paperwork to your lender so that you can be pre-approved. This will provide you the best opportunity for locking in the lowest rate.

On top of that, you will most likely need to have the value of your home appraised. One of the best ways to handle this is to cultivate a relationship with a real estate agent in your neighborhood. He or she will be able to compare your home to others that have recently sold in the area. This can give you an approximate value of your home. If you have not yet decided whether you are going to refinance, it is really not a good idea to go to the trouble and expense of paying for a formal appraisal.

You should only pay for an appraisal once you have firmly decided to refinance and have entered the actual process. Paying for an appraisal prior to refinancing could place you in a position where you may be forced to actually pay for two different appraisals. The reason for this is that there are strict regulations regarding the appraisal process and if you pay for an appraisal prior to refinancing, the chances are not good that the lender will be able to use the same appraisal.

A frequently asked question is whether it is prudent to refinance now if you live in a condo. There is no doubt that the market for condos can be challenging at the current time. If you do decide to refinance a condo you should know that there are typically additional costs associated with the process. Furthermore, there are many mortgage insurance companies that simply will not insure condos any longer. If you are still thinking of refinancing your condo, on average you would need to have a minimum of 20% equity in your property. This is definitely more than is the case with single family residences, but it is the reality. Also, if you are refinancing a condo, you may find it beneficial to add in some discount points.

Refinancing right now can definitely be a good idea; provided you understand the current refinancing market and are prepared to make sure it is the right time for your situation.

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If interest rates are significantly lower than your original interest rates, then it is time to at least consider refinancing. However, along with the potential benefits of home loan refinancing such as lowering your monthly payment, securing a better interest rate or extending your loan term, there are also costs involved. It is best to shop around and compare rates and terms from various lenders to get the best financing deal.