Many people think that once they’ve entered into a mortgage that’s the one they’re with for life, so they never go out of their way to look for a better deal. As mortgages can take up years, and for most of us be with us for our adult lives, it makes sense to keep our eyes open for a better deal that might suit our current situation more. It's important to know that you can refinance your mortgage for a better rate or term. Read on to find out when the best time is to refinance.
Refinancing a mortgage means that you pay off your existing loan and replace it with a new one, and there are many reasons why someone might want to do so. However, there are so many things to consider with refinancing a mortgage such as fees, searches, and paperwork, so for some, it seems too much effort to try.
There are certain times when refinancing your mortgage might be better and some reasons for doing so are certainly smarter than others, but it all depends on your individual circumstances. We’re here to uncover some of the popular reason for this decision and find out is refinancing good for you and your mortgagee.
When Is The Time To Refinance Your Mortgage?
Most mortgages span at least 30 years, so it’s common during that time that we might look around for better options with our terms and interest rates. Knowing when to refinance your mortgage can be tricky, though, as it’s impossible to tell what the external factors might do to change your circumstances.
The most common reason that people look at refinancing their mortgage is when their interest rate has been increased again, and these numbers are solely at the bank’s discretion. Some homeowners might feel that they’ve been misled about the interest rates offered when they first got their mortgage, and now they’re seeing other banks with far lower rates and fees than what they’re paying.
Before making any sudden decisions about refinancing, you should put a lot of careful thought into it. Don’t make your decision based on just a few weeks of high-interest rates or comparisons, because you’ll need to have done your homework.
Consider the long-term impact of refinancing, as just because a deal sounds good now it might not be the same in the future. The cost of refinancing your mortgage can be quite high, so you have to be certain that the new deal you’ll be getting will eventually make up for the costs that you will have to pay.
Why Should You Refinance?
Although there are plenty of times when changing your loan just isn’t a good idea, there are some when it's financially smarter to look at refinancing your mortgage. Here are a few reasons you might want to consider this financial move:
Lower Interest Rates
This is the most common reason people refinance their loans for, and with so many lenders out there offering competitive rates it’s quite easy to get something better than what you already have. Remember though, that rates may change in the future, there are fees to consider, and there’s no guarantee about what your mortgage can do in the future, so try not to be easily swayed by low rates.
Type Of Interest Rate
Home loans are either fixed rate or adjustable rates, and sometimes if the choice you have isn’t working out for whatever reason you might want to refinance to the other type. Ensure you’ve done your research about both, though, as they each come with their own pros and cons.
Shortening Your Loan
If you’re stuck in a mortgage that has a lengthy loan period and you believe that you can have it paid off sooner, you might want to change to a loan with a shorter term. There are fees for refinancing, though, so you have to be sure that the savings you make will far outweigh the money you pay to refinance.
Consolidating Debt
There are many of us who have more debt than just our mortgages, and it makes sense sometimes to have all of these consolidated into one larger but more manageable amount. Some lenders will offer a refinancing loan that lets you consolidate your other smaller loans such as personal loans or credit card debts and compile them into one amount.
Being Smarter With Your Debt
There certainly are benefits to be found with refinancing your mortgage but just like everything else with finance you need to be smart about your choices. Never make a snap decision without spending months weighing up your options and the possible outcomes of the refinancing, as you might end up losing money in the long run.
Choosing the right timing of when to refinance mortgage is one of the trickiest parts of the process, as you’ll need to have some money available and spare time in order to complete title searches, appraisals, and submit new paperwork. The refinancing process works similarly to when you got your first mortgage, so you can expect some waiting periods and meeting with lenders after your application.
There are no hard and fast rules that say you’re stuck with the one mortgage and lender for life, and thanks to the competitive market today there are now so many great offers out there for the homeowner. If you’re seriously thinking about refinancing, it’s best to weigh up all of your options and look at what they offer in the long term and not just now.
Whether you want to consolidate some of your smaller debts into one more manageable payment or simply want to take advantage of lower interest rates and lower repayments, refinancing is one way to achieve this. Have your reasons in mind about why refinance mortgage and do all you can to make it happen if it’s part of your long term financial goals.