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When interest rates drop, it is tempting to refinance your home. However, knowing the best time to refinance your home is important; refinancing may not be the right answer after you factor in costs, the possibility of a longer-term mortgage and your credit rating.
First, the costs of refinancing your home must be taken into consideration. Keep in mind, no-cost loans are not really no cost, the costs are simply rolled into your interest rate. Borrowers need to determine what the costs associated with a new mortgage are and determine how long it will take to recover those costs. In general, if you are planning on living in the same home for less than five years, it may not be the best time to refinance your home.
When you are trying to decide when to refinance your mortgage, another common consideration is interest rates. While many lenders encourage borrowers to consider refinancing when rates are one percent lower, in some cases, it may be better to wait until they have dropped two points. Naturally if your current mortgage is adjustable, a fixed rate could be more beneficial, even if the percentage is only modestly lower. This change can protect you from future rate increases.
Keep in mind, if you have had your mortgage for five or more years, you may want to consider a shorter-term mortgage. for example, if you are refinancing a 30-year loan and you can refinance to a 20-year mortgage, you will be shaving additional years off your mortgage. Typically, a 20-year loan also offers lower interest rates.
If you are trying to decide when to refinance your home, you should also know when you should avoid refinancing. Some of the reasons to avoid refinancing may include:
Any one of these situations can mean you should consider holding onto your current mortgage. If you are thinking about refinancing, speak with a representative at Federated Lending Corporation (FLC) first. We help homeowners all over Bucks County, PA with a broad range of mortgage products.