Refinancing a home loan is a great way for homeowners to save money, especially if they want to shorten their loan term, obtain a lower interest rate, or even fund a home improvement project. Overall, this can be a great financial move for many, since it can save you money in the future—as long as it’s done at the right time.
If you’re thinking about refinancing your mortgage loan, you may be wondering: Is right now a good time to refinance my home? Fortunately, our expert mortgage lenders at First Fidelis are here to help you make that decision.
How Does Refinancing a Mortgage Work?
You’ll likely hear “refinancing” quite often if you have a home mortgage, but what exactly does this term mean? When you refinance a home loan, your existing mortgage is paid off by your bank or lender with a new loan, which you are then responsible for. This new loan typically has different guidelines, including payment term length, monthly payment amount, and interest rate.
While there are many types of mortgage refinancing out there, there are three common routes that most homeowners take, including:
- Rate and Term Refinance: This type of refinancing can be done to change the repayment length of the loan or lower its interest rate. While a Rate and Term Refinance doesn’t necessarily change the total amount of your mortgage, it can save you money each month when you make your mortgage payment.
- Cash-Out Refinance: It’s very common for homeowners to use a Cash-Out Refinance if they need money to spend, whether for a home improvement project, paying off other debt, or investing. Because a Cash-Out Refinance is based on the value of your home—since you draw against your home’s equity to receive the money—this type of refinancing does increase your mortgage debt.
- Adjustable-Rate Mortgage to Fixed-Rate Mortgage Refinance: Homeowners with an adjustable-rate mortgage may notice their interest rate increasing over time. Converting to a fixed-rate mortgage can allow you to obtain a lower rate on your home loan. Conversely, switching from a fixed-rate mortgage to an adjustable-rate mortgage will usually lower your monthly mortgage payment.
When Does Refinancing a Mortgage Make Sense?
There are many reasons to consider refinancing your home mortgage. For most homeowners, refinancing usually occurs for one or more of the following reasons:
- To shorten their mortgage’s term length
- To obtain an interest rate that is lower than their current rate
- To convert their home loan from a fixed-rate mortgage to an adjustable-rate mortgage, and vice versa
- To raise funds to finance a home improvement project, large purchase, or financial emergency
- To consolidate debt, especially higher-interest debt like an unpaid credit card balance
- To take advantage of an increase in your home’s value
Most homeowners wanting to refinance their mortgage are typically looking to save as much money as possible. This is why many people will refinance when it makes the most sense, which is usually when housing interest rates are low.
Finding the Best Refinancing Rates
Determining what time of year is best to refinance your mortgage can be challenging. However, if you’re looking to find the best rates for your refinance, then timing is definitely key.
Interest rates in the housing market constantly fluctuate, so homeowners wanting to refinance should be aware of current rates and how they are changing. If you can reduce your interest rate by at least 1% to 2%, many lenders consider this type of savings enough of an incentive to refinance.
Likewise, those looking to shorten the repayment term of their home loan will also want to refinance when interest rates are low. While the amount of money you’ll save from the refinancing process will vary, it can add up over time, especially if you stay in your house for many years.
In addition to paying attention to the housing market, your lender or bank can typically offer guidance and counseling on the best times to refinance your home, since they tend to know interest rate behaviors and what to watch out for.
Tips for Refinancing Your House
While the process may sound easy, refinancing your home is a large financial decision that should not be taken lightly. Consider these tips to ensure the process is as smooth as possible:
- Find a Lender You Can Trust: Working with a local lender is one of the best ways to ensure that the refinancing process goes well and that all your questions are answered effectively.
- Consider the Requirements of Refinancing: Just like any other loan, refinancing your mortgage requires a title search, appraisal, and application fees. It’s best to consider the time and money required for these items before making any financial decisions.
- Know When Refinancing Doesn’t Make Sense: There are certain instances when refinancing your home is probably not the wisest choice. If you are planning on moving soon, you already have a home equity loan, you’re almost done paying back your mortgage, or refinancing fees are too expensive, it’s likely not the best time to refinance.
First Fidelis works with many homeowners who want to refinance. To get started, fill out our pre-approval application online or contact us at 913-205-9978 to learn more.