Refinancing your mortgage can be a great boon to your budget immediately and over the long term. That said, it can be difficult to determine when it is the right time to go through a refi. While there is no magic mirror that will tell you exactly when to pull the trigger, here are five solid signs that the time is right for you.
Lower Rates Have Become Available
The first sign is that you can get a lower interest rate. Interest rates are at historical lows. Some mortgage brokers are offering rates as low as 5% on 30 year notes and 4% on 15 year notes. Some banks are offering new loan lengths. Instead of the old school 30 year term some are offering innovative 25 or 18 year notes.
Original Mortgage is an ARM
If you originally signed up for a adjustable rate mortgage (ARM), you should consider a refi. With an ARM the interest rate will bounce around based on market conditions. It is like gambling. Your interest rate could go down significantly or it could more than double. A lower rate would be nice, but, if things go the other way, you could face payments that are beyond your means, potentially leading to foreclosure. You should only gamble on an ARM if it is the only way you can secure financing.
Income Has Increased
Has your financial situation changed? Do you now make more money? If so, refinancing from a 30 year note to a 15 year loan may make sense. Sure, the payments will jump quite a bit, but, if you can afford them, the lower interest rate and quicker payoff make a great deal of sense. On the other end of the spectrum are people who have lost jobs or spouses. You may want to consider a refi to lengthen you loan as a last step to prevent foreclosure.
Credit Score Has Improved
Was your credit score a bit dicey when your mortgage was first approved? If you have been able to improve it (on time mortgage payments can do just that), you should be able to get a better interest rate and, possibly, a lower monthly payment. Do not just assume your score has improved. Pull your credit report. Correct any errors, pay off collection actions, or whatever else you can do to erase credit ”hits”. Do this once a year until you feel confident that you have improved your situation enough to get a better interest rate.
You Have a Second Mortgage
It could be time to consider a refi if you have a second mortgage. Chipping away at two mortgages can be taxing. The second mortgage usually has a higher interest rate and then there is the chance that you may occasionally forget a due date. Debt consolidation is the term usually used when you combine two mortgages. Doing so should lower your total payments per month as well as dropping the amount of money that you will pay in total interest.
Mortgages payments account for the largest payment most of us have. They can be budget busters. A strategic refinancing of your mortgage can significantly improve your financial outlook in the years to come.
This article has been provided by CreditRepairZoom.com, a service that helps consumers repair credit for home loans, auto loans, and other important financial milestones.