Deciding on the Right Time to Refinance?

Choosing the right time to refinance is very important because it is a very big financial decision that should not be taken lightly. There are several things that you need to take into consideration before you decide to refinance.

Real Estate Market

One thing that you will want to look at is the real estate market as a whole. If the market is down, it will affect the value of your house. If the value of your house is lower than it should be, you will not be able to get as much money when you refinance. If the purpose of the loan is to get cash out, this can be a big drawback. If you need a certain amount of money to consolidate debt or make a major purchase, you might not be able to do it if the value of your house is too low. Therefore, you need to make sure that your house will appraise for enough to get the money you need. 

Interest Rate

Another thing that you will want to consider when you are looking to refinance is the market interest rate. The interest rate that you get on your refinance is paramount. You will need to make sure that you get a comparable rate to what you have or lower. If you decide to refinance and the rate is higher than what you are currently paying, it does not make much sense to do so. You are taking short term benefits in exchange for long term consequences. A lower interest rate can net you a lower payment and help you on a monthly basis. It will also save you thousands of dollars over the long-term. 

Closing Costs

Another thing that you will want to consider is the closing costs associated with the loan. Closing costs on a mortgage can amount to several thousand dollars. Therefore, you want to make sure that you understand what you are doing before just jumping into a loan. The cost of a refinance can quickly eat away at your equity.

Before signing up for a loan, you should shop around with different lenders and get estimates of their closing costs. Each lender is different and charges different closing costs. All of them are bound by law to give you a good faith estimate of closing costs within three days. Therefore, you can accurately compare closing costs between lenders. 

You should also keep in mind that closing costs are negotiable. Before you agree to the closing costs offered by a lender, you should try getting them to eliminate some of them. When you show them some of the other estimates that you got, they might be willing to match them or beat them in order to get your business. Until you find an estimate on closing costs that you can live with, there is no reason to get in a hurry to refinance.