8 Signs It’s Time To Refinance Your Mortgage

Are you thinking of mortgage refinancing? You may think you’re ready to do it, but do you know why or how?

Refinancing can be done to access home equity, renegotiate the terms of your loan, etc. However, identifying signs that signal when that mortgage should be taken is important. Without these signs, you can’t be sure that refinancing your mortgage is a good idea.

So, here are 8 signs that you should refinance your mortgage today.

1.     Dropping Interest Rates

Whenever interest rates drop, you will pay less every single month. While interest rates have been declining for a time, they won’t always stay that way. Banks are not required to pass those savings down to their customers however. Some banks do this however. 

When interest rates are going down, that is the right time to refinance your mortgage. You’ll not only get a much better deal, but have to pay less over time.

2.     Improved Credit Score

If you’re ever thinking of when to refinance your mortgage there’s no better time than when your credit score improves. Credit scores give you an analysis of your financial history and qualify your likelihood making important payments.

If you’ve proven yourself to be financially responsible, then refinancing is on the table. This can be a away to ease your loan terms without fear that your lender will have to absorb the costs of selling property.

You can also switch to another lender if you feel you can get better terms (more on that below).

3.     Your Monthly Payment is Very High

High monthly payments can eat in to your paycheck. This can be a very apt reason for mortgage refinancing. If you find that you can lower your payments through a lower interest rate, or free up some change, you should refinance.

After refinancing, you can lower the principal and interest payments since you’re paying off a smaller loan now. Hence, if you’ve already paid $50,000 on a $150,000 loan for 30 years, you’ll be paying much less. This can extend the life of the loan, but it will give you relief from high monthly payments.

4.     Dissatisfaction with Your Current Lender

According to a survey on customers’ view on sharing information by Deloitte 33% of customers revealed pain points with current lenders. Respondents also revealed that switching banks isn’t as difficult as you may believe. Customers said that they’d considered changing providers in the coming 12 months.

This is in line with good financial thinking. You should compare lenders and shop for the best deal. If you find a lender that can give you better benefits than others (interest rate, customer experience, features), then switch. Remember that you’re not beholden to any lender to stay with them. You should consider what is best for your home and future and make an informed decision. 

5.     Your Home has Increased in Value

People often make improvements to their homes as times change. For instance, kitchen remodels, roof repairs, or tile replacements, etc. People may also remodel their bathrooms or bedrooms, and also change their house sidings.

These things can objectively raise the value of a home. At the very least, you can recoup some value from the repairs or improvements you’ve made to your home. These improvements can also include adding new heating equipment, or new wiring, etc. This is when to refinance your mortgage without a doubt.

If your home does increase in value, you should absolutely go for refinancing. This is especially pertinent if you’ve got high interest debt you would like to consolidate. You may have even found out that the property value of your block has increased. In that case, your home equity may rise too. This will give you greater borrowing power. 

6.     Mortgage Interest Rates are Rising and You Have an ARM

If you have an adjustable-rate mortgage (ARM), you may think this is an advantage which will lower your bill. However, when interest rates rise, you may find yourself in trouble. Paying a rising interest every single month may very well eat into your paycheck every month. Hence, this is objectively a good time to refinance your mortgage.

If you can, you should opt for a fixed-rate mortgage with your mortgage lenders. However, if you can’t, you should consider switching lenders for your own sake. 

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7.     You Plan to Stay in Your Home Longer

A home is most likely the largest purchase that you will ever make. Most people live in a home for a long time. Even with people moving into big cities where the frequency of changing homes is high, homeownership duration is 13.3 years

Hence, when you buy a home, you may intend to stay longer than a couple of years. Turn this into an advantage and refinance your mortgage. While it’s expensive, and initial costs are big, there’s a good chance you’ll stockpile more savings over time. You can save over a long period of time, and reduce your payments overtime.

8.     Home Equity Access

Home equity is one of your most valuable assets as a consumer. It involves how much of your home you currently own. Hence, if your home is worth $200,000, and you put down $50,000, you will have 25% equity.

With mortgage refinancing you will have the opportunity to give up that equity in exchange for cash value. Hence, you may owe your lender more money in the long run, but you can use that equity in the short-term. This may come in handy when you have some major payments to make like college tuition, or home improvements. You may use this money for anything you like depending on your needs.

With this guide, you can easily find out when to refinance your mortgage according to your situation.

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