If you want to get a new deal on your mortgage, it is important that you consider the times when it is worth to refinance. It is a complex matter, but here are some of the things that you will want to think about.
The Percentage Points
A simple guideline is this: if your mortgage rate is 2 percentage points higher than the average, it might be a good idea to get a new deal. If it is lower than 2 points, you‘ll have to consider other factors.
Duration of Stay
You should also assess how long you plan to reside in the place. If you’ll be moving out in a few months or years, there’s no point in looking for a new rate. Usually it takes several months before the savings can be realized. By then you could be out of the house already.
Getting Out of ARM
This is another factor which determines when it is worth to refinance. An ARM refers to adjustable rate mortgages. Those ARMs can be very deceiving. It’s true that in the right condition, it can save you more than fixed rates. But keep in mind that market forces are volatile.
At any time it can go up. With a fixed rate, at least you have a clear idea of what to pay. Given the uncertain economic situation, it makes more sense to get a fixed rate. This is one legitimate reason to refinance.
Monthly Payment Caps
If your current deal puts on a cap, you need to do some calculating. To know when it is worth to refinance, check if it will let you pay the loan. You need to match this with the figures in the refinancing deal. Which one is better? Remember that refinancing a deal has a lot of costs.
Don’t just look at the rate difference as there are other costs involved. These include the application fee which covers the processing of several papers. Among them will be evaluating your credit status and your loan too. There is also the title search and title insurance. This involves assessing the ownership status.
There are also appraisal fees, survey costs and the homeowner’s hazard insurance. There is also the lender / lawyer fees and payment for inspecting the house. If you are not sure of how to handle these transactions, consider hiring a lawyer.
There are other expenses that determine when it is worth to refinance. There is the VA loan guarantee and private mortgage insurance. There is also the prepayment penalty, which can be quite costly.
Changing the Loan Length
You might consider refinancing to alter your loan contract. With the right deal, you will be able to pay it off sooner. You can also save more money in the process. You might also consider switching
if you are at a balloon program. These are attractive, but only up to a point. At the end of the fixed limit the balance won’t be favorable to you. Refinancing to get out of this setup is a good idea.
Learning when it is worth to refinance is important. Even if you are happy with your agreement, knowing the facts will help you make the right decision if you ever consider it.