When is the Right Time to Refinance Your Mortgage?

by Lee Wyatt
(last updated August 23, 2013)

Have you ever noticed how a persons financial standing never really stays static? It is either rising or falling, generally doing one or the other in an almost cyclic process. As such, there may be several different instances when a person may want to think about restructuring their home finances. One of the most common ways that people do this is by refinancing a mortgage. But when is the right time to refinance your mortgage? Use these guidelines to decide whether the time is right for you.

  • Break even period. One of the most important reasons for refinancing a mortgage is to save money, and that should also include the refinance costs as well as the long range payments. This can be decided by looking at the break even period, which is the period of time that the interest savings will pay for the refinancing costs. Generally speaking the larger the spread is between the new interest rate, and the rate of your current loan, the shorter a break even period you will have. Typically you want to have as short of a break even period as possible.
  • Traditional vs. current reasoning. Traditionally people were told that they should only refinance on their mortgage when a difference of at least two percentage points was present. This would almost always guarantee a huge savings over the long run. However, the traditional reasoning should only be implemented when the interest rates are in the double digits. Currently, the interest rates are around six percent. If you are looking for a proportionate amount of savings when the interest rates are as low as they are now, you should look into refinancing whenever you hear about rates that are lower than what you currently are paying.
  • Avoid ARMs. One word of warning needs to be expressed about refinancing your mortgage. In the simplest, and most straightforward language possible, you need to avoid adjustable rate mortgages (ARMs) as if they were the plague. While these types of mortgages are extremely attractive due to lower initial costs and low initial monthly payments, over time that will change. For the most part ARMs have extremely high monthly payments after a few years, and when you first look at these mortgages those payments seem like they are way off in the future, and that you will always be able pay off the principle early. The truth is, that never really happens, and the higher payments always come due before you are ready, and it is always a struggle to meet those payments.

Author Bio

Lee Wyatt

Contributor of numerous Tips.Net articles, Lee Wyatt is quickly becoming a regular "Jack of all trades." He is currently an independent contractor specializing in writing and editing. Contact him today for all of your writing and editing needs! Click here to contact. ...

MORE FROM LEE

Apple Mash

Apple mash is a wonderful dish that has long been a favorite in Emerald Isle. Learn a little more about this great dish ...

Discover More

Staying on Top of Paperwork

Perhaps one of the most difficult things to accomplish at work is getting ahead on your paperwork, and staying there. For ...

Discover More

What to Ask When Cleaning and Organizing

Are you having trouble deciding what you should keep, and what you should get rid of when you are organizing something? ...

Discover More
More Money Tips

Picking a Mortgage Term

Picking a mortgage term is only one of the things you'll have to do when taking out a home loan, but fortunately it's one ...

Discover More

Understanding Closing Costs

Unfortunately there is more to buying a house than just paying the list price. You need to factor in closing costs and ...

Discover More

What Determines My Home Loan Rate?

Your interest rate is one of the things regarding your mortgage that can be a little vague and hard to figure out. ...

Discover More
Comments

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] in your comment text. You’ll be prompted to upload your image when you submit the comment. Maximum image size is 6Mpixels. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is 4 - 0?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)