With home mortgage rates moving quite a bit these days and more fluctuation in the wind over the next year, many folks in current home loans are wondering if now is the time to refinance, if they have missed the boat, or if there is ever a right time to renegotiate or replace a current mortgage. Unfortunately, there is no true “good” standard timing because most homeowners often have a unique situation with unique demands.
Refinance Interest Rates
Obviously, when interest rates for refinancing and new loans are lower than a current loan, that makes a refinancing attractive. It means for the same loan amount a homeowner can essentially borrow for less cost in interest and, possibly, sending more of a payment towards principal to pay off a mortgage faster. However, a borrower needs to keep in mind the new rate is only good to the extent that it creates a significant reduction. Changes of less than a full point (1%) are almost not worth the time, as well as the new loan origination fees, especially if a person is not going to spend more than another five years in the home financed.
Loan to Value
Another factor that will dictate for many if a refinance is even possible is the metric of a loan to value (LTV). If the new refinancing loan is more than 80 to 85 percent of the home equity, most lenders won’t take on the refinancing application. There are some creative tools out there as exceptions, such as the Home Affordable Refinance Program (HARP), but these often cost more or have variable interest rates which can become very expensive when the rate changes upward. This is especially problematic for those who want to refinance as well as take cash out of equity for big home projects or personal finance restructuring. So people really need to do their math first, passing the first threshold of the LTV formula before getting started. Only then does it make sense to find a bank or mortgage lender.
Length of Remaining Stay
If a borrower isn’t planning to stay in home for another five years, a refinancing is almost not worth the trouble of going through. Many times the loan origination fees won’t be recovered in savings by a borrower until at least five years has passed. If only sticking around for another three years, it may be better to just eat the current loan cost and put one’s money towards improving the home for the best reselling presentation possible.
Luxury properties are wired slightly different, so to speak. Refinancing is rarely an issue – most consumers that visit the likes of SothebysHomes in New York already have luxury in mind, and need not refinance much of anything since income is usually there – as is the downpayment.
Figuring out the best time to refinance often means a homeowner needs to map out all the potential factors, including those above, before jumping in. Folks often get disappointed after having applied for a loan because the homework wasn’t done ahead of time. By simply engaging in a few conversations with lenders and mortgage brokers that have reputable real estate domain names, a person can figure out within a day if a refinancing works or not without applying or suffering any hard pulls on a personal credit report. The knowledge gained is valuable and a decision-maker can make a much wiser choice in the process.