Deciding whether or not you should refinance your home mortgage is probably more difficult for more people, than actually going through the refinancing process. While there may be some general rules that financial experts offer as a basis to refinance your home, the question of should you refinance and when, is a rather complex one, and the answer is not the same for everyone. Obviously, there are situations and circumstances that may prompt homeowners to investigate the possibility of refinancing home mortgage. Such as, when interest rates drop, or the homeowners credit score improves significantly, or perhaps when a personal financial situation dictates that you must refinance. Again, refinancing your home mortgage may or may not be warranted in the above situations, but it is certainly worth investigation to see if refinancing might be best for you.
Whenever interest rates drop in the home mortgage industry, homeowners hurriedly scramble to find lenders to refinance their homes. While a two or 3% interest rate drop may help your monthly mortgage payment, you should consider all the factors normally attached to a mortgage refinance that can inflate the real cost of your refinance. You may notice that lenders often advertise low interest rates to attract attention, but there is always closing costs and fees involved each time you refinance your mortgage.
These may include origination fees, appraisal fees, application fees and a number of other fees that could quickly add up to a significant amount of money. Essentially if you are paying five or $6000 in closing costs, you as the homeowner need to determine by way of calculating your payments how long it will take to recoup those expenditures. If in the end, you are saving, for example $200 a month on your mortgage payment it may take several years for you to get your $6000 back. Consideration about how long you plan to stay in the home is a major factor in determining when it’s right to refinance. A general rule of thumb, is closing fees and costs should not exceed the overall savings and the anticipated time the homeowner may be required to retain the property to recoup these costs.
If at the time you made your original home mortgage, you paid a higher interest rate because of your credit, and then if your credit score improves, refinancing is definitely a worthy consideration. Lenders make profits by lending money. It is important that you keep this fact in mind when trying to determine if it is right for you to refinance your mortgage. Mortgage lenders are more apt to land money with more favorable rates to those with good credit than they would be with those with more challenging credit scores. If you are one of those with a challenging credit score, taking in the fact that credit scores can increase over a period of time, with a conscientious effort to improve by the homeowner. As a result home owners who make a conscientious effort to repair their credit, by simply paying their obligations on time will be rewarded with a lower interest rate when it comes time to refinance your mortgage.
Perhaps the biggest reason homeowners want to refinance their mortgage is a sudden change in financial circumstances. Until recently, homeowners often used their home equity as a savings account in the event of unexpected expenses. Those who find themselves unable to fulfill their monthly financial obligations might turn to re-financing as a way of extending the debt which will lower the monthly payments. However, securing a mortgage or refinancing a mortgage is not quite as easy as it once was. Be prepared to offer a prospective lender a significant amount of documentation, that may not have been necessary in years past.