Getting your first mortgage might have caused you to go through many sleepless nights and endless debates deciding on the best rates, best lender, best deal and even best mortgage program. Once you've followed through with your plans and bought your first home, you probably thought the headaches are all over and done with. After all, all you have to do now is to diligently make the monthly due payments to your creditors on time. Suddenly, here comes the question of home mortgage refinancing. Perhaps you figured you've acquired enough equity on your home that you could probably benefit a little more from your loan. However, you are not entirely sure that refinancing your mortgage is a wise move for you to make.
Experts might suggest that you plan ahead on the best time for you to refinance your home mortgage, so that you won't make a rushed decision that might cost you a lot of money. You may have to do a little research on the best times for you to refinance your home loan, in order to avoid making costly mistakes and to gain optimum benefit from your home loan refinance. Although such decisions can be a little difficult to make, especially since there is no sure-fire way to determine the best time to refinance, some experts do believe that there are general guidelines that may be able to help you decide.
One of the more obvious times to refinance may be when the current interest rate is at an all-time low or if you could manage to cut your interest rate down by 0.5% to 2%. This also depends on the type of interest rate you are currently on. For example, if you are on a fixed rate mortgage interest of 6% and the current interest rate is 4.5%, it is probably a good move for you to refinance your mortgage. However, if the interest rate is only slightly lower than your current interest rate or by less than 0.5%, experts may advise you to stick with your existing mortgage rather than refinancing. The same rule of thumb might also apply to adjustable rate mortgages (ARM). Interest rates for an ARM generally increase over time and change at the end of every adjustment period. By refinancing your mortgage from an ARM to a very low fixed rate mortgage, you may be able to save a lot of money in the long run as you may not have to worry about increasing interest rates or adjusting your budget around fluctuating interest rates anymore.
It may also be a good time to consider a home mortgage refinance loan, when your credit score is improving significantly. Most lenders offer the best rates and deals to consumers with excellent credit score and history. If you have improved your credit score over time, you might be able to negotiate for yourself a better deal. This is because, although the current interest rate is substantially lower, if you credit score is low, your lender might impose on you various fees and charges. However, if your credit score is excellent you may have the option to negotiate for a waiver on the various fees.
Bear in mind that your credit score may not be the only deciding factor on your home refinancing debate. You may want to take a look at your debt-to-income ratio as well. Your debt-to-income ratio may improve if your income has increased from when you first obtained your home mortgage or when you have settled or reduced your other non-mortgage debts such as student loan, car loan and credit card balances. With a low debt-to-income ratio, lenders might be more confident in giving you the home mortgage rate as you will be categorized as a low-risk debtor.
There is no one-shot solution for all financial situations. You may have to evaluate your own finances before deciding to refinance your home loan. The best times for others might not be the best time for you to consider a home loan refinance. So it is advisable that you make your decision based on your own financial situation rather than because others are refinancing their homes as well.