When Should You Refinance Your Loans?
Since mortgage rates are at the lowest they have been in years, many people are asking: Is this the best time to refinance?
Refinancing is the process of getting a new mortgage to replace the old one. It’s done to help the borrower obtain a better interest term and rate. Refinancing your mortgage can give you amazing rewards and savings—if done in the right situation. Do it without research and guidance of an expert, and it can also cause you a great deal of stress and less money in the bank. That’s why risk management and proper goal setting is important before you go forward with any big financial decision such as refinancing.
How often can you refinance your home?
There are currently no laws or regulations that limit how often you can refinance your property but currently, the average Australian borrower is doing it once every 5 years or when they are coming to an end to their fixed rate.
Ultimately, the number of times you can refinance depends on your home equity and credit score. Another thing to consider is events that could trigger changes in the economy. Sometimes such circumstances can make refinancing the best option for your financial state.
Wondering if the time is right for refinancing your loans? Find out some of the best reasons to consider refinancing today.
1. Plummeting Interest Rates
Who doesn’t want cheaper interest rates? This is perhaps the most common reason to refinance. When interest rates are down, it simply means new loans will have lower costs. Many mortgage brokers today are already reporting a surge of refinancing applications and this isn’t surprising. Many people are taking advantage of the low-interest rate benefits.
So, what benefit can you possibly gain from refinancing during fall interest rates? If you took a fixed-rate mortgage when cash rates were higher, you can benefit from reductions in your monthly payments now. Also, those who have recently obtained their mortgage will have higher savings.
Why are cash rates important? Cash rates are lender’s guide to determining their own variable interest rates. By following the cash rate and your lender’s actions, you can gauge if it’s the right time to refinance. Check the mortgage rates by speaking to your lender. Discuss your situation and find out how you can take advantage of the falling interest rates. When you refinance a mortgage right now, you can get a new loan and use it to repay your existing mortgage.
2. Swap Your ARM and Fixed-Rate
Adjustable-rate mortgage (ARM) can end up having higher interest rates than fixed-rate mortgage even if the ARM was provided at a very low cost at first. Low rates can surprise borrowers later on when their monthly payment goes up.
By swapping your ARM to a fixed-rate loan, you can benefit from a predictable, more manageable, and lower rate now. You will have more stability in your budget. Furthermore, when interest rates go up again in the future, you will enjoy a lower fixed rate. This is an outstanding financial move especially if you have a rental property you would like to sell soon.
3. Take Cash Out of Your Home
Equity is the value of your home minus the amount you owe. If your home equity has significantly increased, now is a good time to refinance. Many experts believe that this cash can help if you have been negatively affected by the pandemic.
A lot of businesses today are suffering from a reduction or a total loss of income due to lockdown and the continuing health crisis. This has created a domino effect on all industries including the real estate. The emergency cash you can take from your home can help you earn money to cover the costs of current bills. You can also use it to invest or renovate your current home.
4. Repay Your Mortgage Faster
Time is money and if you want to save a huge amount of cash, you want to repay your mortgage faster. By refinancing to a lower rate, you can benefit from a lot of savings and maybe even faster repayment of your mortgage.
5. Find A Better Lender
Perhaps you’re stuck with your current lender who has given you a bad rate for your home loan. Refinancing can help you find better lenders that give you good interest rates. You just need to shop around to find who can give you the best rate possible.
A Word of Caution About Refinancing…
Refinancing can be a great financial move, but there are also a few risks you have to be aware of. First, refinancing can be a costly decision. It comes with expenses such as your application and discharge fees. Also, if you have less than 20% equity, you may have to pay Lenders Mortgage Insurance.
There are some instances where refinancing can also be a very bad idea. One example is when your total interest cost increases despite your monthly payment decreasing. This commonly happens to people who refinanced for a longer year mortgage. To prevent this from happening, always look at the big picture when you refinance.
If you’re trying to decide whether you want to refinance or stay locked in your loan, talk to a broker. Professional mortgage brokers – at V Corp here – can help you handle the situation and guide you to make the best deal from your lender.
“With Morgage Rates So Low, Is Now A Good Time to Refinance?” – forbes.com
“When to Refinance a Mortgage: Is Now a Good Time?” – nerdwallet.com
“Will savings on refinancing outweigh closing costs? First do the math” – investopedia.com