Mortgage Refinancing: It’s All About Timing
Posted on December 2, 2009 in the mortgage refinance category
Mortgage Refinancing: It’s All About Timing
Just like any other financial decision you have to make in your life, understanding when to refinance your mortgage will make a world of difference. Alternately, knowing when it is not a good idea to apply for mortgage refinancing will ensure that you will not get screwed with any hullabaloos in the market.
In practical terms, mortgage refinancing is about saving money on total loan amount and monthly mortgage fees but there is a good time to make a move.
The 2%PRCTG%-Rule
One of the best times to refinance your home is when you can get an interest rate that is two percent lower that what your current loan offers. Ideally, 2%PRCTG% is enough to recoup the cost of the loan. However, there are certain requirements you must meet if you want to take advantage of lower rates including your credit score and the amount of equity left in your home. Also, take note that you have to stay in your properly for a certain period of time (called the break-ever period) to recoup the cost you paid for the new loan. As a general advice, avail refinancing if the prevailing rate is low.
Clear Goal
Many homeowners wish to refinance their mortgage because they have a goal in mind. Some want to consolidate debt through refinancing. A common misconception is if making such move will pay off debt. Wrong. Entering into consolidation only restructures your debt. So if you owe %10,000 from your credit card company, refinancing will not pay them off; it will only extend it throughout the life of your loan.
Homeowners also refinance their mortgage because they want to switch from ARM to FRM. Adjustable rates can be a headache. For one thing, you cannot definitively know what would be the prevailing rate 12 months from now. So if the rate hits the lowest today, switching to fixed rate mortgage is the best idea.
Understanding your goal doesn’t always mean you have the right to take the loan. Sometimes, understanding would mean letting go of lower rate after realizing that such move is unwise.
When to Refinance
Low rate is a good trigger to consider refinancing, but other factors have to matter. Refinancing costs money. In 2008, the national average for closing cost on a %200,000 loan is %3,118 ? according to Bankrate closing cost survey. This does not include other fees such as insurance, taxes, and other dues.
To recoup the cost and get the savings promised by your new mortgage, you have to consider how many months are you willing stay on your property. For example, your new loan will save you %150 on your monthly payment and the closing cost of your new loan is %3,118. It will take you 21 months to recoup the closing cost. Monthly savings are influenced by several factors including points, credit score and rate.
Tools
Mortgage calculators will help you determine how much savings you will get every month with your new loan. These tools are available online, free of charge.
Mortgage Consultant
Bad advice leads to bad credit debt so make sure that you consult a reputable mortgage advisor to help you know if mortgage refinancing is really for you. Consultation is usually free and you are under no obligation to continue dealing with an advisor if you feel uncomfortable with him/her.
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19 Responses to “Mortgage Refinancing: It’s All About Timing”
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Interesting post! Its important to understand what refinancing involves before deciding to refinance or not.This is a very informative post. Refinancing is like paying your existing mortgage at the same time creating a new one.
Great post, keep up the good work
nice ideas i am quite impressed with your views
There is always more to the “deal” than rate. Thank you for making this point. Closing costs and new monthly payment can be a big (and ugly) surprise for home owners who do not know the right questions to ask.
I am a complete newbie on the block and I really appreciate reading insightful real estate and mortgage blogs. Keeps me updated and informed. Thanks for the great post.
This is a great blog! I would really like to keep reading your blogs. Cant wait for the next post. Good blogs are hard to find!
Winter boots
Refinancing mortgage is a good thing to develop ones entire world. But we should be committed to have arrangements well before doing it.
Great Article! Were at a crossroad as whether to refinance or not. The rates that we’ve been shopping around seem alright, but we just don’t want to refi just to do it. Might want to save that for a rainy day so to say.
Tomorrow Something New Blog
Nice plain english explanation of different aspects of refinancing.
Hopefully, no more mortgage confusion for your visitors.
I would add in that often other factors make it beneficial to refinance even if you receive a higher rate than you currently have.
Also, rolling some debt into the mortgage can free up monthly cash flow that can go towards accelerating the debt down and then the mortgage too. Who doesn’t want to be able to say ” I have no more mortgage “.
Refinancing can cost quite a bit of money, so unless you’re planning on locking into the new rate for a few years, it probably doesn’t pay off in the end. However, with rates the way they are now, I imagine there are some good deals for a lot of people.
I know some mortgage calculators out there that are online..but how do I know if the results are the same with companies..
Very informative post I really enjoy reading your blog the content is rich in facts and ideas. I would subscribed on this blog.
I like what you say about ARM and FRM, but I do know people at the moment really benefiting from ARM due to the recession.
nice ideas i am quite impressed with your views
Refinancing is good.. but i’m not prefer choosing mortagage. But nice blog from you..
Pretty neat and to the point information. Keep the good stuff coming. Don’t you think the overall situation of country and its currency affects these figures?
Very informative. Thanks for the post.
Nice to see all this info in plain english not just in mortgage jargon.
Very true, about the 2% rule when refinancing a mortgage, I’ve seen people where the 2% wasn’t enough to make the mortgage refinancing successful. Great site by the way!