When’s the Best Time to Refinance a Mortgage?
For most American homeowners, their mortgage payment is the single largest expense they pay every month. So, it is no surprise that when interest rates drop, homeowners by the score apply to refinance their loans to lower their rate, so they can save money.
But what happens when interest rates start heading the other way? Is it still a good idea to refinance your mortgage when interest rates are rising?
The answer depends on a few factors. In this guide, you’ll learn how to determine the best time to refinance your mortgage when interest rates are rising.
What is the Interest Rate on Your Current Loan?
While a lot of experts might suggest waiting to refinance until rates start to fall again, the reality is that if you have an older loan, then the interest rate you are currently paying might still be considerably higher than what you can get if you choose to refinance now, despite the upward trajectory of the rates.
How Fast are Interest Rates Climbing?
Changes in mortgage interest rates are a fickle thing. They can fluctuate in either direction very slowly, or they can rise or fall in quick and dramatic fashion. But traditionally the rate changes trend in one direction or the other for a while before holding steady or moving the other way.
As a result, the speed at which the rates are rising is one thing to keep in mind if you are thinking about refinancing. If the rates are climbing quickly, then you may want to refinance soon to lock in the lowest rate possible.
Is Your Credit Score Better or Worse Than When You Got Your Current Loan?
Getting approved for a refinanced loan isn’t an automatic thing. There are requirements that you will still need to meet and one of them is having good credit. If your credit rating is worse today than it was when you originally closed on your home loan, then you may not qualify for the rate you want. You may even wind up qualifying for a rate higher than what you’re currently paying. So, before you start thinking about refinancing, check your credit and do what you must to get it as good as you can.
How Long are You Planning on Staying in the Home?
Refinancing your home loan isn’t free. You will still have to pay a variety of fees and closing costs. So, even with the savings you get on your monthly mortgage payment, it can still take a few years before you reach your break-even point. If you aren’t planning on staying in the home for at least five more years, then you could end up losing money on the deal.
How Old is Your Current Home Loan?
If your current mortgage is older than 15 years, then most of your monthly mortgage payment is being applied to the principle of the loan. This means that you have already paid the bulk of the interest on your loan. If you choose to refinance now, then you will be starting from square one all over again with most of your payment going toward the interest on the new loan. Unless you can refinance into a loan with a shorter term and a substantially lower interest rate, then you may be better off continuing to make your current loan payments until your home is paid off.
Discuss All Your Options With a Mortgage Lender
If you are still unsure about whether to refinance your mortgage when rates are rising, then the best thing to do would be to talk to a professional mortgage lender. Your lender will be able to review your current loan, check your qualifications, and give you the most up-to-date information about interest rates. They’ll also be able to match you with the best loan product to help you reach your goals.
Or, if it turns out that you aren’t currently a good candidate for a refinance, then they can also provide you with valuable advice for what you need to do to become one.
