Homeowners: When Is The Right Time To Refinance?
Question: When Is The Right Time To Refinance?
Answer: The answer to the question of when is the right time to refinance is when the mortgage rates are low.
The above question on when is the right time to refinance has more than one answer. Most homeowners refinance when mortgage rates are low but there are other reasons why homeowners need to refinance which we will discuss on this mortgage blog article. Other reasons why homeowners need to refinance is to take out non-occupant co-borrowers , need to do a cash out refinance mortgage , Refinancing FHA Loan To Conventional Loan , and cases where married joint homeowners split and need to get one of the spouse’s name off the mortgage note.
The number one reason why most homeowners refinance their current home loan is to save money by getting a lower mortgage rate than the mortgage rate they have now.
How Does Refinance Work?
A refinance mortgage is when a homeowner pays off an existing mortgage loan and replaces it with a brand new mortgage loan. The new mortgage loan can be by the same mortgage lender or different mortgage lender. The homeowner needs to go through the whole mortgage loan process which includes completing a new mortgage loan application, having their credit report pulled, getting a new home appraisal, and providing documents to the mortgage loan officer. Besides obtaining a lower mortgage rate, there are many other reasons why homeowners choose to refinance their mortgage loans. Here are some of the reasons why homeowners decide in refinancing their mortgage loans:
- To obtain a lower mortgage interest rate than the mortgage rate they are paying now.
- To shorten the term of their current home mortgage loan. For example, many homeowners will refinance their 30 year fixed rate mortgage loan to a 15 year fixed rate mortgage loan because they want to pay their home loan off earlier.
- To convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage or vice-versa. This is often advised when mortgage interest rates are going up and the homeowner decides to keep their home for long term and not move out. Locking in a 30 year fixed mortgage rate will offer stability where the principal and interest payments will not change.
- To tap into the home’s equity to finance a large purchase ticket item or consolidate high interest credit cards.
Rumors Of Mortgage Rates Increasing
All year there were rumors that the Federal Reserve Board was going to increase mortgage rates. However, to this day, mortgage rates have been stable. When Is The Right Time To Refinance then? Should homeowners wait since the Federal Reserve Board has not raised interest rates or should they expect that mortgage rates will be increasing. Nobody has a crystal ball and how interest rates work is if there is good news with the economy and unemployment numbers are low and economic growth is strong, then it is bad for interest rates and interest rates will rise. If there is bad news with the economy and there are high unemployment numbers, then interest rates will remain the same or drop. The past week, the economic and unemployment numbers have been solid and better than expected and the rumors that the Federal Reserve Board will be increasing interest rates is back in the pipeline. Nobody can tell you what to do and you need to decide for yourself whether or not if this is the right time to refinance your mortgage loan.
When Is The Right Time To Refinance? A Look At History
Mortgage rates were at an all time low back in April 2013 where FHA mortgage rates were at 3.25% and mortgage rates on conventional loans were under 3.5%. Tens of thousands of homeowners were going to refinancing their home loans but many of them did not lock their mortgage rates. Then in May 2013, mortgage rates started creeping up where most homeowners and mortgage loan originators did not panic because what goes up will come back down with a market correction. Unfortunately, this time around, mortgage rates kept on increasing and did not make a correction and mortgage rates broke the 4.0% mark on all mortgage loan programs. Many homeowners lost their opportunity to refinance their home loans because they did not lock their mortgage rates. Again, nobody has a crystal ball on what the markets will do and where mortgage rates will head. There is a possibility that mortgage rates may spike up and come back down with a market correction. However, mortgage rates may repeat history and keep on going up with no downward correction. When is the right time to refinance? If today’s mortgage rates make sense to you and can save you money and you will get a net tangible benefit from the refinance, maybe today is the right time to refinance your mortgage loan.