How to Know When to Refinance
Timing is everything in life. You time when to have kids, when to change jobs, when to move to a new state and when to start seeking out new opportunities. Depending on your current lifestyle, you may attempt to time when you start up a new hobby that you’ve gained an interest in. Thus, it makes sense that you’ll have to time large financial decisions just as much as the other interests in your life.
Many people start to consider refinancing as soon as the rates start to drop and, right now, they’re at historic lows, so it can be expected that many are rushing to refinance their current mortgage. However, for many, it raises the question of how to time your refinance just right. How should you go about weighing the current markets and your own finances to make the right decision for you and your future?
At Lending Studios, we’re proud to make understanding the nuances of finance easier than ever before. We believe a lender should offer full transparency and provide a number of resources to help their clients become more educated and confident in their upcoming financial decision. If you’re not too sure about refinancing yet, check out our research resources to start learning more.
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Even When Rates Are Low, It Might Not Be The Right Time
As we mentioned earlier, rates are often the deciding factor for most folks preparing to refinance, however, that is not always the best route to take. Your decision to refinance your mortgage should be affected by more factors than just a new lower rate. Like any financial decision, there are upsides and down sides to every move you make, and being able to reasonably calculate your risk and reward is a key component of being able to make a clear, logical decision. You should start by asking yourself a couple of key questions. The answers should help make your path to refinancing clearer.
Start with these questions:
Do I need to change the type of loan I currently have?
What has changed since you secured your last loan?
How much will I really be saving?
How long do I intend to stay in this home?
Will I qualify for the loan I really need?
Can I consolidate debt through a refinance?
Do I need to change the type of loan I currently have?
Depending on the type of loan you secured originally, you might be better off financing for a few reasons. While low interest rates are always great, if you initially could only secure a non-fixed rate loan, it might be time to upgrade to a fixed rate and take the guessing out of the equation. Alternatively, if you plan on moving sometime soon, you might consider lowering your interest rate and paying less for a house that you don’t intend to stay in for too long. If you initially secured a short term loan that makes your monthly bill a little more expensive than you’d like, you can toggle that down by extending the period of the loan.
What has changed since you secured your last loan?
If you’re trying to determine the “when” of your refinancing, this is one of the more important questions you need to ask yourself. If your credit score and payment history has drastically improved since you last secured your loan, it probably is time to get a fresh loan. You’ll likely qualify for better loan terms, a better interest rate and you’ll be able to break even sooner on the loan itself.
However, if you’ve recently hit a rough patch in the last few years since you purchased your home, it might be better to wait. Rough waters to navigate in your finances might not seem like a big deal now that they’ve passed, however, they can often leave their mark on your credit score. Applying for a refinance will only save you money if you can access a good rate, and if you can’t because of a recently damaged credit score, you might want to wait a little while. This is especially true if your current credit score is lower than the score you originally secured your mortgage with.
A little credit repair before any kind of refinancing is always a great idea. Be sure to be diligent with your credit score as you start making your determinations. If you’re paying on or ahead of the due date and never carrying a balance, you’ll reap the rewards when you do determine that it’s the right time to refinance.
How much will I really be saving?
One of the biggest benefits of refinancing is the money you’ll save in the long run. For cash-out refinances, it can be a little different, as you’re likely using the money you pull in to consolidate debt or to spend it in another way. However, for most refinancing options, you’ll often end up saving money if you do it right. How much money you’re saving should be a key component of your decision and the timing of your refinance.
When you refinance you’ll save money through two main avenues: reducing your monthly mortgage payment or decreasing the amount of interest you have to pay on your loan. Anyone’s hope is that you’ll manage to secure both of those benefits, however, depending on your needs and your current financial situation, that’s not always possible.
You could lower your rate by accessing a longer term on a new loan. For example, if you have 20 years left on your loan and you refinance for another 30 year loan, you’ll be lowering your monthly payment. You will, however, spend a grand total of 50 years paying off your home, rather than the initial 30 years because your payments will now be more spread out. However, if you’re in the same position with 20 years left on your loan and you wish to drastically decrease the amount of interest you pay throughout the life of the loan, you could refinance for a 15 year loan. This would shorten the amount of time you’re paying your loan off, but would also likely increase your monthly payment. However, in the long term, you’ll be saving money on the interest you’ll be paying over the life of the loan as 15 year refinances are paired with lower interest rates than their 30 year counterparts.
If you’re not too sure whether you’ll be saving enough money on your refinance at this moment in order to rationalize pursuing it, don’t be afraid to reach out to us for guidance. We’d be happy to help you run the numbers and give you a realistic preview of how much you’d be saving through the different types of refinance that you could explore. We’re here to help you find the best solution possible. If the numbers are scrambling your brain, schedule a consultation with one of our experienced professionals to help you understand your options.How long do I intend to stay in this home?
For most folks, it will only make sense to refinance your home if you intend to stay there for some years yet. If you’re considering potentially selling and relocating for any reason, it’s not a great time to refinance. For many, a refinance will take some time to pay off. You may not break even, let alone start really saving money for years after your refinance. If you’re curious about where you’ll break even and when your savings will start, be sure to reach out to Lending Studios. We can help you examine the details of your situation and give you a realistic estimate about whether or not you’ll be able to start saving money and how soon that will kick in after you refinance.
Will I qualify for the loan I really need?
If you think refinance is right for you based on the above questions, that’s excellent, but you’ll need to evaluate whether you and your home actually have refinancing on the table as an option before you begin. You’ll need to ensure that you can qualify based on your income, your credit and the amount of equity you have currently in the home. You’ll need to prove that the house is worth more than the loan value of the home. You’ll need to prove that you earn enough to handle the monthly payments, and you’ll need to prove that you’re dealing with your current mortgage and paying your bills on time currently. If you don’t have those things in your corner, you can still apply but the new loan terms might not be favourable to you. In terms of timing, it might be better to wait until you feel comfortable with your credit situation and your income.
Schedule an Initial Consultation with Lending Studios Today
Here at Lending Studios, we’re proud to provide you with unbiased and transparent advice and lending opportunities. We have a wide selection of lending options and can now serve as your primary lending agency. Whatever type of refinancing option you’re most interested in, we can provide all of the information and advice that you need to browse your options with finesse. If you have questions about timing in regard to a potential refinance, please reach out to us. We’re always happy to schedule a consultation and help you look over your options and determine the right time to refinance depending on your hopes and dreams for your financial future.
We’re excited to start supporting you and helping you make the right decision for you. Contact us today to get started.
