Every four years. That’s how often the average American homeowner refinances their home loan.
Why so often? Sometimes it’s because interest rates go down and they want to take advantage of them. Or their income has increased and they want to move to a shorter loan term. Or their credit has improved enough to garner a better rate. Or it could simply be that the current monthly payments are too high and they need to extend the length of the loan to lower them.
Whatever the reason, refinancing can mean big savings for you… or it might not be worth it, depending on your personal situation.
Are interest rates at least one point lower then your current loan?
Experts use that as the cut off point where you might want to start looking into refinancing to see if it’s worth it. Anything less than a one point difference typically doesn’t make financial sense. If current interest rates are two or more points lower than your current loan, definitely look into refinancing.
[Mortgage Help: Get your free credit report and see if your credit score is mortgage qualified]How long do you plan to keep your current home?
The days of buying and flipping might be behind most of us for the foreseeable future, but that doesn’t mean homes can’t be an investment, and there’s nothing wrong with living in a house or condo for a few years and (hopefully) selling it for profit. But think about that carefully when considering refinancing.
There are costs attached – usually several thousand dollars worth – which will likely take a few years to recoup with a lower interest rate or monthly payment. Use a mortgage refinance break-even calculator to see how long you’ll need to live in your home to recoup your costs.
Do you have an ARM?
Adjustable-rate mortgages – as the name implies – rise and fall with current rates. If you expect the rates to go up (and since they’re pretty much as low as they can go right now, they probably will), you might want to lock in today’s low rates by refinancing into a fixed-rate loan.
Do you need to free up money for high-interest debt or another big expense?
If you have a good amount of equity in your home but need money, a cash-out refinance might be they way to go. It means getting a new mortgage for a bigger amount than you owe now, so think hard about your future before taking this step.
On the flipside, it is a great way to get a lot of money fast to, say, renovate your home, pay for your child’s college education, or pay off high-interest credit card debt. Just make sure you can handle your new monthly payments and you won’t end up owing more on your house than it’s worth in the future.
If you do decide you want to refinance, shop around. Quizzle.com offers many free tools to help you evaluate your home loan options. You should also check with your current lender – many times they’ll give you a better deal just to keep your business!