If you are a homeowner, the odds are that you have seen some of the attractive interest rates out there. The next thought in your head is probably: when is a good time to refinance your house?
That is a great question to ask and the answer, unfortunately, is not as straightforward as you might like. The truth is that there are multiple factors to consider if you are thinking of refinancing. Below we will go over several factors that you should consider. Specifically, you need to think about what the future might hold in regards to interest rates and what kind of loan you have.
Ultimately, it will be up to you to indeed identify if refinancing at this time is worth your time and effort, or if it is more beneficial to wait a while or keep the rate you have.
Predicting the Future
What refinancing boils down to is looking into the past to see where you have been and then trying to look into the future to make an educated guess as to what might happen. The good news is that you do not need a doctorate in economics to make a sound decision.
First, let’s take a look at where you were. When you first obtained your loan, what were interest rates like? Were they fairly high? Perhaps your loan originated after the Great Recession when interest rates were set incredibly low. If you got your loan when interest rates were at the lowest they have been in decades; then you might want to sit out.
However, if your loan was obtained before the great recession made historic changes to the financial markets, then this might be an excellent opportunity for you to take advantage of.
Another potential point you might consider is whether you believe interest rates are going to rise shortly. Again, you don’t necessarily need to be an expert on the financial markets to gauge whether you think interest rates will increase. An easy way to think of it is that if the overall economy is in flux, you might be better off waiting and seeing what happens. Turbulence in the economy is often a good sign that it is worth it to play it safe.
On the other hand, if you think that interest rates aren’t likely to suddenly surge, then it might be a good idea to talk to your lender or see what interest rates are out there. You might also want to think about shopping around.
It is quite often the case that the offer you get from one financial institution will vary significantly from another. Each lender might have different requirements, and if you look around enough, you might find the perfect lender for your financial situation.
Loan Type and Length
Another point to consider is what kind of loan you have and what the length of the loan is. If you have an automobile loan and you are getting close to paying it off, then it might not be worth your time to refinance.
However, if you obtained a high-interest loan when you bought the car, refinancing could bring down your monthly payments substantially. The same holds true for mortgages. Home loans could save you substantial amounts of money since they are usually held for many years.
To learn if it is worth it to refinance, you might want to look online for a calculator that will help you make that decision.
Switching from an ARM
If you initially obtained an adjustable rate mortgage, then you might also want to think about refinancing. Often if you refinance, you will be able to change from an adjustable rate mortgage to a traditional mortgage. This will depend greatly on several factors including your credit rating.
However, switching over to a conventional mortgage could have a significant effect on your monthly mortgage payment and is, therefore, a great use of your time to look into.
As the above points explain, it is quite often a great idea to refinance your loan. While it is true that you need to consider several factors, with a little common sense you could truly make a big difference on your monthly payments.
This isn’t to say that it will be easy. If you remember when you first obtained your loan, it required a lot of work to gather all the needed documents. However, after it is all over, you can potentially place yourself in a better financial position.