You likely signed the first (many) lines of your mortgage paperwork with the confidence that you would get the best rate based on your financial situation and the housing market.
Now is the right time to refinance your mortgage. To find out if it is the right time for you to refinance your mortgage, check off as many of these items that apply to your situation.
Mortgage Rates Dropped
This is the main reason why homeowners refinance. Why pay a higher rate when lower rates are available?
How much lower is it necessary to make it worthwhile? Although it is common to refinance only if your current rate is 2 percent lower, lenders will accept a difference of one percent.
Rates have risen and you now have an adjustable-rate mortgage (ARM)
If your original mortgage had an adjustable rate, an increase in rates could mean that you are paying more than you should. Fixed-rate mortgages can offer stability if your ARM is not working anymore.
Your Credit Score Has Improved
Your credit score was one of the most important factors that your lender considered when determining your initial mortgage rate. Maybe you have paid off your student loan, or reduced your credit card debts. Your score may be more appealing than ever. You may be eligible to get a lower rate if the change is substantial.
Your House Has Increased in Value
If you are eligible for a cash-out refinance, this refinancing strategy will be similar to a home equity mortgage. The new mortgage you get will be for the increased value of your house. You would then be eligible to the cash difference between the original and the new mortgage.
This option may be chosen by some people to pay off higher-interest debts or to fund discretionary spending. However, it is important to remember that the money is still a loan and must be repaid.
Do you have private mortgage insurance (PMI)
PMI is required if your original mortgage allowed for less than 20% down. This protects the lender in case you default. After you have paid the equivalent of 20 percent of your home including any down payment, you may be eligible to cancel your PMI if you refinance.
Note: If you have a conventional mortgage loan, your PMI can be removed once you reach 20% equity. Otherwise, it will automatically drop when you reach 22% equity.
FHA does not allow borrowers to cancel FHA MIP after the LTV reaches 78%. FHA insurance can be canceled by refinancing to a loan that is not FHA-insured.
Do you plan to stay in your home for at least three more years
Refinancing a mortgage is not an easy way to make quick money. It may take months or even years to break even after a mortgage refinance.
Talk to your loan officer about your future plans for your home so that they can help determine if refinancing would be in your best interests.