You hear the ads on the TV and radio. The offers are there in the mail. You know it’s true – refinancing your mortgage can make a big difference in your budget. A simple change from 4% interest rate to 3% interest rate can bring you an extra $110 per month on a $200,000 home. But when is the best time to refinance a mortgage? Here are some suggestions.
Refinancing Your Home – Pros and Cons
Pros: The reasons you want to refinance would be to decrease your interest rate, to reduce monthly payments, or if you’re looking to consolidate your debts.
Cons: There are some reasons you might not want to refinance your mortgage. Refinancing often can lead to decreased savings because of increased closing costs.
When It’s Worth It
What you want to do is decide how many months of a lower mortgage payment it would take to recoup the cost of the closing costs incurred by refinancing. You may have to pay points, appraisals, attorney fees, and settlement costs as well, so that will be something to consider. However, if the mortgage payment becomes much more affordable, it might be worth it even if it doesn’t lower the overall mortgage cost. Sometimes for those in a bind, making day-to-day life more bearable is worth it.
The best time to refinance will depend on you and your situation. However, here are a few reasons to refinance:
* If you can find a rate at least 0.375% lower and break even within 24 months.
* If you can find a rate at least 0.375% lower and break even within 36 months, if you plan on staying in your home at least five more years.
The Best Timing
We’ve all heard the tales of local police and their ticketing quotas — what do we do in response? Watch out at the end of the month. The same is true for car dealerships — they’re much more intense with their salesmanship at the end of the month as they strive to reach their quotas. And the same is true with loans – studies have concluded that the best time to refinance is in the last two weeks of the month.
Likewise, the best time of the quarter to refinance is the last month of the quarter – March, June, September and December.
Remember that making the decision to refinance depends on many factors. Consider your situation, do the math, Ask Nereda First and remember that timing can be everything.