When to Refinance a Mortgage

Mortgage rates can be confusing to understand, unless the homeowner does their homework to find out all the options made available to them. Exotic mortgages are even more confusing than traditional mortgage loans. In fact, many people are experiencing financial hardship with their mortgage payments because of rising interest rates. For example, homeowners who have a variable rate mortgage loan will experience higher interest rates on their loan after the fixed rate period ends with the mortgage. Most homeowners have neglected to understand the fine print with these types of mortgages. Refinancing is a must for many homeowners to be able to stay in their home and avoid foreclosure.

If interest rates are lower than the interest rate that is being paid on the mortgage, the homeowner will want to refinance their mortgage. Basically, anytime that interest rates drop below what homeowner is paying on their current mortgage will be the best times refinance their mortgage loan. There are many factors that dictate mortgage interest rates, like a slow housing market. In order to promote more sales in the housing market, lenders will lower the interest rates on their mortgage loans to attract more buyers. A slow housing market is another opportune time period to refinance a mortgage.

Homeowners who have a current mortgage should refrain themselves from multiple refinancing. In other words, refinancing a home more than once can leave a trail of closing costs. This can actually hinder the ability of the homeowner to save money on their interest rates that are being charged with their mortgage loan. The goal of the homeowner will dictate when the best time to refinance their mortgage as well. The main goal of refinancing a mortgage is to obtain a lower interest rate, but it isn’t the only reason.

Refinancing a mortgage is actually the process of restructuring the mortgage as well. For example, a homeowner who wants to refinance their mortgage has the option to lower their interest rate, but they also have the option to extend the payment out 30 more years. By extending the payment out 30 more years, the homeowner will experience a lower monthly payment along with a lower interest rate. Many homeowners who are retired and live on a fixed income, and if their home isn’t paid off, they will need to lower their monthly mortgage payments to adjust for inflation and cost of living increases.

If a homeowner experiences a decrease in income, or they need extra monthly cash on hand to save up for retirement, they have the option to extend their mortgage 30 more years. The best time to refinance a mortgage will be different for each homeowner. It’s important for the homeowner to identify when the best time it will be to refinance, and they shouldn’t abuse the refinancing process by having a history of multiple refinancing on their mortgage. Another key aspect to refinancing is the type of mortgage that the homeowner currently has. Refinancing a mortgage is often done to avoid higher interest rates that some mortgages are associated with.

A variable rate mortgage and an adjustable rate mortgage are both mortgages that start out with a low interest rate, but the interest rate rises throughout the contract. Many homeowners will take advantage of the low interest rates that these types of mortgages provide in the beginning. However, before the fixed rate period of the interest rates are over, the homeowner will refinance their mortgage loan to avoid higher interest rates in the future. Choosing a different type of mortgage is a way to adjust for market changes and cost of living changes as well.