Knowing When To Refinance

: Chris Lee Law Firm

  Filed under: Refinancing

refinancingAlthough refinancing a mortgage can be a good way to lower monthly payments, it isn’t for everyone. More specifically, there are good times and bad times to refinance a mortgage and knowing when to take the leap is a very important step. Anyone considering a refinancing option should review the following criteria:

Good raterefinancing a mortgage to get a better rate is the biggest driving factor for most people. With interest rates at their lowest in years, you may find that refinancing your mortgage can lower the rate enough to significantly lower your monthly payments. A good rule of thumb is to only refinance a mortgage if the new interest rate is at least 1% or more lower. Anything less will take too long to see benefits and could cost you more than the trouble is worth.

Good credit–many people fail to consider their credit standing when refinancing. As the main qualification factor, refinancing a mortgage should be done when your credit is in good standing. This may mean waiting six months to a year in order to improve your credit score and boost your chances at the best loan. Although some lenders hold a minimum score of 620 as their qualification standard, it is much more common to be required to carry a score of 700 or better.

Better Loan— refinancing is a great way to get out of a bad mortgage loan. Many people agreed to poor loan terms a few years ago when the housing and lending market was in full swing. Adjustable Rate Mortgage (ARM) loans can be risky when the interest rate begins to rise over time, which makes refinancing this type of loan into a fixed loan a good idea. It is safe to assume that refinancing any adjustable or variable rate mortgage into a fixed rate mortgage is a good strategy.

Before default–it isn’t uncommon for people to begin pursuing refinancing when they default or get close to defaulting on their loan. However, this is typically one of the worst times to consider refinancing a mortgage as lenders are rarely willing to approve a refinance once the house has entered default. At this point, credit is damaged and the home is viewed as a risk and you may find that pursuing loan modification or short sale to be a better option. Refinancing is always best before financial trouble sets in as the process can be costly at the time of closing.


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