For a lot of people, the mortgage process for buying their first home is grueling enough that they sigh “Never again!” and plan to simply live in the house until they die peacefully in their favorite chair. For others, refinancing a house is almost like a game of Lowest Rate Ever that they never get tired of playing. No matter which side of that spread you fall on, chances are that you will eventually refinance your current home at least once. What many people wonder is: When is the right time to do so? This depends on what kind of loan you have and your situation.
If you have an adjustable rate mortgage, whether or not to refinance depends a lot on the current conditions. While many people feel wary of ARMs and may think that they should refinance into a fixed-rate as soon as possible, the fact is that could cost you a great deal of money if you refinance just as your ARM rate takes a nosedive. A little patience when the market is soft can pay off in terms of much lower mortgage payments for months or years. When rate start to rise, you can usually time your refinance to secure a good rate that stays fixed below where your ARM eventually ends up.
If you have a fixed-rate mortgage, keep the cost of refinancing in mind. Like any mortgage product, refinancing costs in terms of closing fees and other expenses. You should only consider refinancing if a) you have recovered from the expense of your original loan closing, and b) you intend to stay in the house. If you sell the home soon after refinancing, you won’t make back your closing costs with your saving on lower monthly payments.
Finally, consider the value of your home: While being “underwater” is a common reason people seek a refinance, if your home’s value dips too low, you may not be able to get a loan. If you see your home’s value dipping and your equity disappearing, refinancing sooner rather than later might make sense.
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