Buying a home is a time for celebration. Having your own space, a place to call your own, is often the most important thing on the minds of new homeowners. After time has passed and you and your family have settled, you may realize that you could benefit from refinancing your home loan. There are many factors that may arise that make refinancing beneficial. Here are 5 signs that it is a good time to refinance your home loan.
1. You’ve gotten better credit.
Time has passed and you have increased your credit score. If your credit score was low when you first secured your mortgage, you probably received a high interest rate. Through payments or consolidation, your score may have increased, and refinancing could reduce your interest rate, saving you considerable money.
2. Percentage rates have gone down.
A reduction in even 1 point could make it a smart idea to save money on your mortgage.
3. Doing the math gets you a better deal.
Crunching the numbers will give you an idea of the money that you could save. To calculate, take the total cost of refinancing, including closing costs, and divide this by the money you will save per month. The outcome of this math will tell you how long it will be before seeing the savings. Refinancing now may not save you any money for months, so be prepared for this.
4. You want to switch loan types.
Many homeowners enter into a mortgage with the understanding that they will not be living in the home for an extended period of time. They may have originally financed through an adjustable mortgage rate (ARM) loan. Switching to a fixed rate loan after the ARM loan’s lower introductory rate is over can save homeowners money. It allows you to take advantage of the low ARM rate and then switch to the fixed rate mortgage.
5. Plans changed; you intend to stay in your home for a longer period of time.
After doing the math, you will see how long you will need to stay in your home before you see the benefits of a refinance. If you are planning to stay in your home longer than that period of time, it makes sense to refinance. If you plan on selling your home before that time, you’ll never see any of the savings, so skip it.
Refinancing can be an effective resource for homeowners looking to save money. Just be sure that refinancing is worth your time and money.
