When Should I Refinance My Mortgage Home Loan

Most homeowners will be delighted if they have a chance to refinance their mortgage at a much lower interest rate. However, it is not always a right time to go ahead with this decision. There are some factors you need to consider.

Refinancing after refinancing can sometimes do more harm than good to your financial situation, especially when closing costs are involved. However, in most cases, a home loan refinance offers more advantages than disadvantages.
 

Identify Your Goal


Prior to deciding if you should proceed with a house loan refinance, you need to determine the purposes you want to do so. After all, a home loan refinance does not pay off the outstanding balance you owe to the bank; it just helps to restructure the loan, either by adjusting the loan term or lowering the mortgage rate.

Typically, borrowers intend to reduce the current lending rate with a more attractive refinance rate, but there are people who want to seek relief by extending the loan term, so the monthly repayment amount can be reduced.

If you have some other types of loan that run on higher interest rates, for example car or auto loan, you may combine all these loans into just one that having a lower rate, and it is known as debt consolidation.

On top of what have been mentioned above, some homeowners refinance because they want to hop to a fixed-rate mortgage from an adjustable-rate mortgage. This happens especially when the interest rate is low, where there is not much difference between opting for adjustable rate and fixed rate. People usually choose a more secured option, which is to go for fixed-rate mortgage and vise versa in high interest rate environments.
 

So When Should You Refinance Your Mortgage?


After you have identified the purpose for refinancing, the next thing you should look into whether the current situation or timing is right for you to make that decision.

In a survey conducted by Bankrate on closing costs in 2008, the average closing costs countrywide is $3118 on a $200000 loan. And the figure did not include expenses like insurance premiums, taxes and other prepaid items.

"Should I refinance" or "should I refinance not", there is a quantitative way to help you to decide. You can calculate the number of months needed to recover the closing costs before making up your mind. You have to know how much you would save by refinancing. For instance, if the monthly repayment is reduced by $200, 15 months are all you need to recoup the closing cost of $3000. In fact, you may search for online mortgage refinancing calculator to assist you to figure out how many months you need before recouping your total costs.

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