When Does Refinancing Really Work
Mortgage refinancing has become quite common in recent years and it often seems like everybody is doing it. There are certainly good reasons that you might want to think about refinancing your mortgage. However you do have to keep in mind that it is not always a good idea. You need to be able to determine when refinancing will work and when it won't.
The question of when refinancing works really comes down to what you mean by works. If you mean can you free up the money in your house it works any time that you have equity in your home. However most people who think about a mortgage refinance are wondering if it will save them money. If this is the goal then there are very definitely things that you are going to need to look at to determine if you will save money. The decision can actually get quite complicated so you may need the advice of an expert to help you.
The biggest thing that you are going to have to look at to determine if refinancing will work for you is what interest rates have done. Obviously you are going to want to see interest rates go down but you do have to ask yourself how far the interest rates have gone down. It actually takes a fairly significant movement to make it worthwhile. The reason is that there are fees involved in refinancing your mortgage and the amount that you save on interest has to be more than enough to offset this amount.
The other big thing that you are going to have to look at when you are deciding whether refinancing will work is going to be the length of time that you have left on your mortgage. The longer that you have left the better, it means that interest rates have to decline by the smallest amount. The amount that you will have to pay on your mortgage is a combination of the interest rate and how long you are paying it for. The longer you are paying the more you will have to pay. That means that when it comes to refinancing the longer you have left on your mortgage the less interest rates have to decline in order to make it worthwhile.
Of course there are other times when it will make sense to refinance your mortgage, the biggest of these is if you are on an adjustable rate mortgage and interest rates go down. In this case what you are going to want to do is to switch to a fixed rate mortgage so that you can lock in the lower rate. This decision can get really tricky because you need to factor in not only the interest rate, the length of the mortgage and the fees but you also have to determine what the interest rates are likely to do in the future.