When Is It Time to Refinance My Home Loan?

Whether you agreed to a specific market rate and terms to pay off your home mortgage last year or ten years ago, a lot may have changed in your life — your job, your car, or market conditions. If these important factors aren’t stagnant, why should your mortgage be?

With impending lowered interest rates inspiring confidence in the real estate market, refinancing is at the forefront of people’s minds. Depending on the relationship between your original loan arrangement, current market conditions, and a variety of other factors, now could be a favorable time to explore refinancing your home loan.

For many, refinancing your home soon makes a great option. But when is the right time for you? We’ve put together some tips to help you decide if now is the right time to refinance your home loan.

What is Refinancing?

Before you consider refinancing your home loan, it is helpful to understand how refinancing works. When you refinance your loan, you pay off your existing loan and replace it with a new one.

Refinancing may be an incredible opportunity right now, or it may never be right. The decision to refinance depends a lot on your refinancing goals, market conditions, and your personal financial situation.

Why Refinance?

When you refinance, you replace your current loan with a new one, so you need to know what you’re looking to achieve by taking out a new loan. There are several reasons to refinance, depending on your financial and lifestyle goals.

Lower Monthly Payments

When your refinancing goal is to trade high payments for monthly savings, the most important factor to look for is lower interest rates. If current rates are lower than the rate you locked in when you secured your original loan, you have an opportunity to decrease the amount that you’re paying in interest each month.

Take Out Money For Home Improvements

If you need cash for home improvements or repairs, refinancing can help. In this instance, you’ll actually want to increase the total amount of the loan. 

For example, if you owe $100,000 on your home, you may be able to refinance your loan for $120,000, leaving you $20,000 for your improvements. We recommend only using this strategy with professional help for costs that are going to go back into your home.

Reduce the Length of Your Mortgage

If your goal is to reduce the length of a mortgage, you’re likely looking at changing from a 30-year to a 15-year loan. This means higher payments each month. If you’re financially capable of making those payments, you can save in interest payments over the life of your loan.

6 Factors That Determine When to Refinance

Since refinancing is a relative decision, it is dependent on your personal financial situation in relation to the economic climate. These are six factors to assess when determining when to refinance your home.

1. Mortgage Rates

When mortgage rates are lower than they were when you originally locked in your mortgage, it may be time to refinance. It’s worth considering refinancing if you can decrease your rate by half a percent or more than your current loan terms.

2. Loan Type

Some homeowners may also benefit from switching their loan type. For example, the switch from an adjustable mortgage to a fixed one is an often favorable refinancing decisions. Switching loan length yields financial benefits as well — opting for a 15-year loan instead of 30-year loan may increase monthly payments, but save money in the long run.

3. Your Credit Score

In order to secure favorable rates, it is helpful to have a strong credit score. While you may be able to secure a new loan, the interest rates might only be marginally better with a low credit score. If your credit score has gone up considerably since you last secured a home loan, you may be in a favorable position to secure better mortgage terms.

4. Your Debts and Income

Also commonly known as your debt-to-income ratio, mortgage lenders will want to know that you have a stable job history with a good source of income, a safety net of savings, and minimal debts to cover.

5. Your Home’s Value

The equity in your home is important to assess prior to refinancing your loan. You should be aware of your home’s current value. If the value has dropped, you may want to reconsider re-investing in the property — you want to be sure that your home is where you plan to stay for an extended period of time. However, Florida home values are expected to continue to rise in the second quarter of 2023.

Insider Tip: It may be possible to refinance even when the borrower owes more than the home is worth.

6. Refinancing Closing Costs

It’s important to remember that refinancing comes with closing costs. You should be prepared to pay 3-6% of your outstanding principal in fees. These may include discount points, a fee to prepare the mortgage, and other fees, dependent on your mortgage type. Make sure the money you’re saving on interest payments is more than the costs to secure that rate.

Contact the Mortgage Experts at CDM to Determine When to Refinance

At Chris Doering Mortgage, we’re expert mortgage planners. We take an advisory role, taking the time to walk you through each step of the refinancing process to find the right option for you.

Let our experienced team guide you through calculating your personal breakeven point and help you confidently determine when is best to refinance. Give us a call to find out if and when refinancing is a good idea for you.