There are many situations where it may be to your advantage to refinance. For some homeowners, a quick check of the standard rates against what's currently paid is all the incentive needed to start the paperwork for a refinance loan. That is only one reason to consider refinancing, as there are many situations that could make mortgage refinancing a tempting option.
Are you making payments on a variable rate mortgage? If you are eligible for home refinancing at a fixed interest rate, you can save money and build in a predictable monthly payment thanks to the unchanging interest rate.
Mortgage refinancing with fixed rates may depend on your credit rating and other factors, so if you choose this option it's best to work on your credit before applying in the same way you did when applying for the original loan.
Pay your bills on time, and request a copy of your credit rating from one of the three major credit agencies (Experian, Equifax or TransUnion) to make sure there are no errors or old credit issues on the books which should be taken off your record.
Does your current mortgage have an introductory fixed rate period followed by a variable rate? If you are nearing the end of the introductory period and about to lose your fixed rate, consider mortgage refinancing before the variable rate period begins.
In today's market, you should expect to pay a higher interest rate after the introductory period expires if you keep your current loan. Even if you only refinance for a single percentage point of interest lower than the current going rates, your savings over the lifetime of the loan can add up to thousands of dollars.
Do you have equity in your home? The value of a house increases with every improvement and upgrade you put into it. Have you added a swimming pool? Replaced the roof? Remodeled a basement? It all adds up to higher equity. Some homeowners calculate the equity in their home and consider a mortgage refinance plan up to the "new" value.
This process may require you to have the home re-appraised, inspected, and given an "official" new value before your paperwork may be submitted, so be sure to budget for the cost of an inspection or appraisal. Your loan officer can give you plenty of information on what's required to arrive at the new value of your home.
No matter why you decide to explore a refinance loan, it pays to shop around for a lender who can give you the most competitive rates. Your current loan officer may be eager to keep your business and offer you a lower interest rate on home refinancing, but think of the advantages you'll have playing one bank against another.
Some people find the best rates by playing one lender off another by contacting their current lender and requesting mortgage refinancing terms without trying to haggle or bargain. Once they have terms in hand, these savvy shoppers contact another bank and request that institution's home refinance terms.
If the new bank's terms are only comparable, the buyer tells the new bank's loan officer about the terms offered by their current lender and asks if a more competitive deal is available. If the new lender offers better terms, the buyers has a choice—accept the new terms, or contact their current lender to see if an even better deal is possible.
In the end, you lose nothing by putting two lenders in an informal bidding war against one another regardless of which bank you decide to use. You may discover a point where neither lender is willing to budge, but at that point you know you've reached the best possible terms available.
There is a variation on this strategy—simply add any number of additional lenders to the mix; you'll soon find the "bottom" of the market in terms of getting the best interest rate.
Sometimes the question, "When should I refinance my home?" is best answered by looking at your current payments and doing the math with a potential new interest rate for the lifetime of the loan.
How much will you save by taking out a refinance loan? If you aren't happy with your current monthly payments, it may be time to explore your home refinancing options. If your credit and income qualify you for a more competitive rate, the only thing standing in your way of lower payments is simply filling out the forms and starting the process.
See also: Refinance interest savings calculator
