Making the decision to refinance your home is a big step, and knowing when the best time to do it is key. If done right, refinancing can make homeownership more affordable.
Keep reading to learn when to refinance your mortgage and why.
Factors to Consider When Refinancing Your Mortgage
Knowing when it’s time to refinance your mortgage means considering a few factors.
- Mortgage rates. One of the first things to think about is the mortgage rate. Ideally, you want to lock in a lower rate for lower payments. You should also consider the interest rates, and if you can reduce your interest rate by at least 2%, this is a sign that it’s time to refinance.
- Home equity. You should only consider refinancing your mortgage if there is equity available in your home in case your home value drops lower than when you purchased it. In fact, many lenders won’t even consider refinancing your mortgage if you do not have enough home equity.
- Credit history. If your credit score does not meet the lender’s minimum requirements, you won’t be able to refinance your mortgage. Build your credit score by paying bills on time and limiting how many new lines of credit you’re opening.
- Refinancing costs. Make sure that you are financially prepared to cover the costs associated with refinancing your mortgage.
These include the following fees:- Application
- Recording
- Appraisal
- Credit checks
- Title services
- Settlement fees
You can try to lower refinance costs by increasing your credit score, requesting fee waivers, and negotiating closing costs.
Why Refinancing Can Make Homeownership More Affordable
There are many reasons why homeowners might want to refinance their mortgage. Lower interest rate
If the interest rates have dropped since you first purchased your home with a mortgage and your credit score has improved, refinancing can provide a lower rate.
- Change the interest rate format. Refinancing also makes it possible to change the format of your interest rate between fixed and adjustable. Changing from an adjustable loan to a fixed-rate mortgage is a great way to guarantee predictable monthly payments.
- Raise money for large purchases. If you need money for large purchases or a financial emergency, refinancing your home gives you access to your home equity for things like:
- Investing in property
- Lowering high-interest debt
- Paying for tuition
- Home renovation projects that can increase your home value
- Getting rid of PMI. Refinancing your home could get you out of paying private mortgage insurance right away.
Calculate Your Mortgage with Island Coast Mortgage
Is it time to refinance your home? Use our refinance analysis tool to check out how much refinancing your mortgage could save you. To get started, please call the expert team at Island Coast Mortgage in Cape Coral at 239-214-7011 and schedule your consultation.
