When Is the Best Time to Refinance Your Home?
When you replace your existing mortgage with a new mortgage, this is known as refinancing. A lot of homeowners choose to refinance their mortgage if they find a better deal for the interest term or the rate. Once you refinance, the original mortgage is paid off with your new one.
Refinancing your mortgage can be a good idea if you suspect you’re paying too much on your mortgage. It can also be a good idea if you find yourself in a bad financial situation and you need to adjust the terms of your mortgage. However, that doesn’t mean refinancing is always the best solution. Depending on when you refinance and your financial situation, it might be risky. In this guide, we’ll explain the best time to refinance your home.
What Are the Risks of Refinancing?
You already know the benefits of refinancing. You get a better deal at a better rate or you change the terms of your loan. Yet, refinancing is not without its risks. Many people are quick to jump on the bandwagon of supporting refinancing without considering how this might be a bad move financially.
First, you have to be aware of any penalties you might face by paying off your first mortgage early. These are known as pre-payment penalties, and they can cost you thousands of dollars if you aren’t careful. You’ll need to ensure your new mortgage will cover these fees or at least be a worthwhile exchange that takes this fee into account.
In addition, refinancing your home is expensive. You’ll likely need to include an attorney’s fees for reviewing paperwork along with traditional mortgage bank fees. This might not be worth it depending on how much you’ll be saving with your new mortgage.
When You Shouldn’t Refinance
While there are many times you should consider refinancing your home, there are also reasons you should avoid refinancing. If you’ve had your mortgage for a long time, for instance, it’s best to avoid refinancing because this will lead to paying down interest again rather than building equity.
In addition, if you plan to move within a year or two, hold off on refinancing. Your monthly savings for your new mortgage likely won’t be enough to offset these initial refinancing costs if you plan to simply move in the near future.
The Best Time of Year and Month to Refinance
If you’ve decided to refinance is the best move for your financial situation, it’s time to break out a calendar. Mortgage interest rates fluctuate throughout the month and the year, so there are best times to start your search if you want to secure a great deal.
Financial Samurai reports that the best time of year to refinance is at the financial year-end. This is because those working in these services rely on year-end bonuses, and these are often sales based. However, realize that the financial year for loan providers doesn’t usually follow the calendar year.
Similar to the idea above, searching at the end of the month will help you get a better deal. Loan officers usually have targets to meet each month, so they’re typically more motivated to offer bargains to shoppers during the second half of each month.
Finally, you’ll want to take a look at the changes in average home interest rates. These fluctuate all of the time, and they’re actually rising from the record lows of 2012. Depending on the current rate, you might decide to hold off and wait. Currently, the average home mortgage rate for a 30-year fixed rate mortgage is 4.45%. How does this compare to what you pay now?
Making the Right Refinancing Decision
When is the best time to refinance your home? As you can tell from the guide above, it often depends. First, it depends on your own financial situation and your long term goals. For instance, if you need to work on your credit score or if you plan to move soon, it’s likely a good idea to hold off. Second, it also depends on how far you are into the current lender’s financial cycle.
Getting the best refinancing deal sometimes feels like a balancing act. As long as you know what you’re looking for and how much you can afford, you’re prepared to make a smart decision about your mortgage.