How to know when to refinance your mortgage


Switching to fixed-rate loan: if your mortgage has an adjustable-rate, it means that your payments will get affected by interest rates as they change. So, your payment rate can go up or down depending on the change. However, switching to a fixed-loan rate means that you will end up having reliable monthly payments. So, as a homeowner, you are guaranteed security and stability of your finances because your monthly payment rates will never change.
Removal of private mortgage insurance: if you are a homeowner with a property that has a good appreciation or whose principal has been paid, then you won’t need to pay mortgage insurance. This means that your total monthly payment costs will reduce.
How Long Will it Take to Refinance a Mortgage?

There isn’t a specific time set to refinance a mortgage. It all depends on the lender and how long they take to handle things such as credit checks, complete inspections, and appraisals among others. But with the availability of technology, it has now become easier to refinance mortgages.
You can make your application online, use e-signature, and even send the lender scanned documents. So, it’s possible to get approval within 30 days. The best thing about this whole process is that you can use an online mortgage calculator to find the best rates and the payment schedule.
The Bottom Line
Refinancing seems to be a good idea, especially when you are looking for a mortgage plan with low-interest rates or to reduce your loan payment duration. But just like everything in life, there are possible risks that are associated with it. So, before you sign up for it, it’s important to discuss with the lender to determine if you will break-even at a reasonable time. In addition to that, consult with a finance officer regarding your financial goals.
Be prepared and understand what you are going for. Consider how long you’re planning to live in that home, the period of time it will take to recoup the closing costs and the current interest rates


when you’re applying for a new mortgage loan.
According to the Chief Financial Analyst (CFA) for Bankrate, Greg McBride, you should definitely look into it of you can take off to of a percentage-point from your mortgage rate when you opt for refinancing. Greg goes on to say that once you know your cumulative savings based on monthly payments, then this is enough to effectively offset the refinancing costs.
Note: if you are planning to move out in the next couple of years, then it might not be effective.
It should be noted that interest rates are crucial in determining when to refinance. The interest rates are normally determined by market factors and this includes long-term yields on Treasury Bonds. But in addition to that having good credit is vital. This helps to determine if you qualify for the best refinance loan. Understand that the best interest rates and a good credit report go hand-in-hand.
The Process of Refinancing

Refinancing a mortgage works in a similar fashion just like getting a new one. This is because you have to shop around and compare different interest rates offered by different mortgage offers. You do this with the aim of finding the best offer compared to your existing one.
Understand that if your credit profile has improved since you got the approval of your previous loan, then you stand even a better chance of getting great terms. But while looking for the best rates, you should be careful and check other things such as prepayment penalties. This is because you might be penalized by some companies if you decide to pay off your mortgage earlier than expected or if you refinance again.
Generally, finding the right type of loan mainly depends on your personal needs. Some people may want to move from mortgages with adjustable rates to those with fixed rates and a steady payment per month. Alternatively, there are those who might want to shorten their loan term.
Note: overall, most homeowners tend to go for straight rate and term for refinancing. This normally gives them a manageable repayment plan with lower interest rates.
Cash-Out Mortgage Refinancing
With cash-out refinance, you replace the current home loan with another mortgage that has a higher amount than your current outstanding loan balance. Homeowners normally use cash-out refinance to pay for things such as college tuition, home renovations, or meet other financial needs.
Note: if you start accumulating debt again, then you are increasing your financial risk. You may end up missing your mortgage payments and this means that you would end up losing your home. Before going for a cash-out refinancing, make sure that you seek the services of a mortgage consultant.
Calculating the Break-even Point for Closing Costs


For instance, if your new mortgage normally saves you say $160 monthly and the closing cost is $2,500. Then it will take around 15.6 months in order to break even. I.e. 2500/160=15.6. This means that in case you are planning to sell your house before this period elapses, then refinancing isn’t the best solution for you.
Comprehensive Mortgage Refinance Example
For instance, let’s say that you took a $150,000 mortgage spanning 30 years. The mortgage has a fixed interest rate i.e. 6%. So, if you are supposed to pay $899 monthly for 30 years, then you will end up paying a total of $323, 755. This amount includes the interest of $173,755.
Let’s say that you decide to look at your finances 5 years after you took the loan. You would have paid an interest of around $43, 541 and around $10,418 that’s directed towards the principal amount. So, what if you want to refinance the remaining amount of the principal balance ($139, 581) using a 4.5% fixed-rate loan for 30 years?
Well, this means that you will end up paying around $707 monthly. So, your monthly payment for the mortgage will end up reducing by $192 per month. During the loan’s lifespan, you will end up paying a total of $254, 605 and out of this amount, $115,024 will go towards interest.
In addition to that, you need to add the $53,959 that you had paid previously during the 5-year period. This means that your total costs will accumulate to around $308, 564 and $158,565 will go towards interest.
What does this mean in refinancing then? Well, it means that you will end up saving around $15,190 in terms of interest in the long-run. In addition to that, your total monthly payments would have reduced significantly.
Why Should You Consider Refinancing?
There are several reasons why people opt to refinance their mortgages. Some of the potential benefits of taking home refinancing include:
Reducing the duration of loan: sometimes people take home loans with the repayment period spanning decades. But as time progresses and your finances improve, you can apply for a home refinance so that you can pay off your mortgage sooner.
Reducing monthly payment: this is one of the main reasons why people opt for home refinance. Research studies on mortgage payment indicate that a homeowner can end up saving more than $150 monthly once they opt for refinancing. It should be noted that with lower monthly payment, you can put your savings into other uses.
Take cash-out refinancing: with the increasing value of homes, refinancing can provide a great way of getting cash-out finance. The equity you have means that you may end up getting money that you can use to fund other projects and pay debts.



Every homeowner would definitely love to save a few coins. One of the biggest monthly expenses that homeowners usually incur is paying mortgages. Currently, mortgage rates are historically low and it’s at this point that homeowners should consider refinancing their loans.
The first quarter of 2020 has been characterized by significantly low rates. But the trick to successfully use this information for your financial gain is knowing WHEN to refinance your mortgage.
Knowing WHEN will not only save you lots of money but you will also be able to build great equity. As a result, you will end up paying your mortgage faster. With the current low rates, even those who are new when it comes to paying mortgage loans can greatly benefit from this plan.
What is Refinancing a Mortgage?

This is a process that involves taking a new loan so as to pay-off your initial mortgage loan. Most homeowners normally take advantage of reduced market interest rates offered during refinancing as well as reduced monthly payments and cash-out.
When Is It Right to Refinance Your Mortgage
For starters, there are several crucial things that matter when it comes to refinancing. They include:
How long you intend to stay in your home Your financial goals Your financial situation The total amount of equity you have in that home employment history and your income Your current mortgage’s payment history Other types of debts
Overall, the qualifications for refinancing a mortgage are similar to the qualifications that lenders consider

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