When Is It Best To Refinance Your Mortgage?

What To Look For When Refinancing From A Fixed Rate To A Fixed Rate

After the Federal Reserve announced it had lowered its rate by a half percentage point many Americans assumed it was time to refinance. So, around the country, thousands of people called their lenders to start the process.

However, many will not be able to take advantage of the new, lower interest rates. Sometimes mortgage rates move in opposition to the Federal Funds rate. If the Federal Funds rate goes down, mortgage interest rates may rise.

There are many facts you must gather and consider first. How long is your current mortgage? Does it adjust? When will it adjust next? How high can your loan go? How many years are left on your loan at the current interest rate?

One of the main questions is, how is your credit? What is your credit score? How long will you keep the home you are now in? How much home equity do you have? What interest rates will you qualify for (this relates directly to your credit score)?

With the current mortgage mess, lenders have raised the minimum credit score you need to get a great loan. If you previously needed a 720 on your FICO score to get that great rate, you now need a 760 or even a 790 score.

Equity Is Necessary

You also need to have some equity in the property in order to refinance. Many homes have fallen in value. If that’s the case in your neighborhood, and you bought the property with a 100 percent loan two hears ago, you might not have the equity you once thought you had.

Assuming you have very good credit and enough equity in the property, you need to assess if interest rtes have fallen enough to make refinancing worthwhile. If your current mortgage is fixed for 30 years at 6.5 percent, today’s 30-year fixed rate is at 6.83 percent with closing costs.

Now if your mortgage is now 8.5 percent and you can swap that for a 30-years mortgage at 6.83 percent and every paying closing costs, you would be ahead.

To give yourself the largest number of options, be sure to shop around. I would typically call four or five different lenders to make sure that the rate you are going with is the best. Also, your original lender often try’s very hard to keep your business and if you have kept up with your payments and on time, you most likely will be shown loyalty for this.

They will want the business of a customer who has had a good credit history with their company. There are thousands out there now that are having problems making their monthly house payment.

What About Refinancing Other Types Of Loans?

There are times when it makes sense to refinance your mortgage. It’s important to have the financial objective in mind so that you’re more able to choose the most appropriate loan.

Since the Federal Rate has gone down and if your credit score is in a good position, now is the time to consider changing to a safer and more productive move if you have one of the following: adjustable rate mortgage, to lower your interest rate if it is substantially higher, to reduce from two mortgages to one, or if advised by a financial advisor for other purposes.