When is it a Good Time to Refinance?
The short answer: now!
Interest rates have been hovering around 50-year lows. Thirty-year fixed-rate loans have never been more attractive, particularly in the wake of the failure of some of the more exotic financing excesses during the recent housing bubble.
However, there are definitely factors to consider before you jump into a mortgage refinance. Remember that there are costs involved-fees, closing costs, bills from legal and accounting professionals, and don't forget to factor in the time you'll be spending in the process. Make sure the financial advantage you stand to gain will more than cover those expenses. Be certain that you have solid strategic reasons for refinancing your mortgage. These might include the following.
Lower Costs Over the Long Term
The possible cost benefits of a lower interest rate on your mortgage are two-fold:
- Lower monthly mortgage payments, which means you'll have more money to save and/or spend from month to month
- Lower total cost over the life of the loan, creating a capital advantage for you on your biggest investment-your home
Security, Stability and Predictability
The media has been filled with adjustable-rate mortgage (ARM) horror stories. The resulting economic turmoil and the Federal Reserve's response have kept interest rates super low over the past year and a half, but it's a safe bet that rates will rise with economic recovery. Depending on how high those rates go, even borrowers with reasonable ARM mortgages could face significantly increased monthly payments.
The solution? Refinancing into a 15- to 30-year fixed-rate mortgage. In addition to the cost savings resulting from current low rates, these loans offer certainty-your monthly mortgage bill won't be subject to interest rate fluctuation, and you'll sleep better at night.
So Should You or Shouldn't You Refinance?
Every homeowner's situation is different, and the answer depends on many factors. Use the knowledge and experience gained during the recent home financing boom and bust to review your options carefully and make wise choices. Keep in mind, however, that the current opportunity is unique and rates won't stay in the cellar forever.