A low interest rate is tempting, but good timing involves more than that.
Does it seem like everyone else knows the best time to refinance and you seem to miss it? Everyone wants a better deal, even if the existing deal isn't too bad to begin with. That's why so many people refinance mortgages every year, and why you might want to think about it, too. The problem is getting the timing right.
Knowing when to refinance can be as difficult as making the decision to refi at all. But is there really a best time, or should you jump in whenever the rates drop low enough to give you a lower monthly payment?
Sometimes a Tiny Dip is Worth It
Traditional advice says that when interest rates drop by half a percentage point, that's a good time to talk to a lender. But the Wall Street Journal explains that for some homeowners, an eighth of a percentage point can yield tidy savings.
The difference is in the amount that you're refinancing. On a loan that's about $200k or lower, you probably wouldn't save much with that small of a drop. But on a jumbo loan, which is in the $400k and up range, that eighth of a percentage point can save you $100 or more a month. Over the life of the loan, that's significant.
Good money management is worth all of the effort when it helps you get a better loan.
Advertised Rates Aren't a Guarantee
When interest rates drop, it can be pretty tempting to imagine what you'd save at the newest low. But before you check an amortization schedule, remember that the lowest advertised rate is just that - an advertisement. Only people with the best credit score will get that rate, and Money Management International says there are other factors that go into qualifying.
Jumbo loans and any loan that's for more than 80 percent of the home's value will probably get a higher rate. If property values have decreased where you live, your value might not be high enough to qualify, even if the value was a lot higher just a year ago.
A Refinance Isn't Free
Before you commit to a new mortgage, be sure that you'll really save money in the long run. With all other criteria met and a good interest rate secured, savings is only savings if you come out ahead on all fronts. Factor in closing costs to determine whether it's really worth it.
Although some lenders advertise no closing costs, this is another example of how few things in life are ever really free. With a zero closing cost loan, you'll probably get a higher interest rate. Banks aren't in the business of losing money, so read all of the fine print and count on paying for it some way.
The best time to refinance your home is whenever you can truly save money. Sometimes that's when interest rates drop, and sometimes it's not. If your credit is significantly better than it was when you first financed the house, you could still get a better interest rate even though they haven't dropped enough to get anyone else too excited. And if rates are great, your current situation might not qualify. It's always personal.
Refinancing your house is a huge decision, and a lot of it hinges on whether your home's value is high enough to support it. That's where eppraisal can help. With a free property valuation, you'll get the estimated value of your house, which is a great starting off point for deciding whether this really is the best time to refinance your home.