If you’re searching for the lowest refinance rates you might wonder when it’s the best time to refinance your mortgage. Taking the time to learn how to refinance the right way will help you avoid many of the common mortgage mistakes your neighbors are paying for. Here are several tips to help you starting with the best time to refinance your mortgage loan.
The Best Time to Refinance Your Mortgage
The rule of thumb on when the best time to refinance your mortgage is during bad economic times. During the recession mortgage refinance rates have been at their lowest levels in history and lenders are desperate to close home loans. Savvy homeowners can use this to refinance not only with the lowest refinance rates but with outstanding terms and rock-bottom prices.
The test of how good a deal you’re getting on your mortgage refi comes not from getting the lowest interest rate but how much it’s costing you to close. Commonly overpaid refinancing closing costs include the loan origination fee and paying unnecessary discount points.
When is the Worst Time to Refinance?
The worst possible time to refinance your home is during economic upturns. Home values tend to go up and many homeowners see increases in their disposable income. Banks and other financial institutions expand and open new branches. When the market is inflated refinance rates and lender fees tend to be significantly higher than you see during a recession.
Unless you’ve been living under a rock you know that we’ve been through the worst economic recession since the depression meaning now is the best time to refinance your mortgage. Refinance rates are near the lowest levels they’ve been in sixty years so there is no better time to lock in a lower payment.
What is the Best Mortgage Type?
The best type of mortgage loan depends on your situation. Mortgage type means a couple of different things including the term length (15-year vs 30-year) and the type of interest rate (fixed rate versus adjustable rate). If your budget needs the lowest payment choosing longer term lengths with adjustable interest rates will get the job done.
If you’re not familiar with Adjustable Rate Mortgage loans (ARM) you’ll see them quoted commonly as 5/1 or 7/1 ARMs. The first number represents the fixed period and the second is the frequency the lender will reset after the fixed period expires. In the case of a 5/1 ARM the mortgage is fixed for the first 5 years and resets every 1 year after.
If your goal is to pay down your home loan as quickly as possible choosing a shorter term-length and a fixed rate mortgage is a good option. Popular choices for mortgage refinancing include 15 and 10-year term lengths.
Common Mortgage Mistakes When Refinancing
One of the most common mistakes people make is focusing on getting the lowest refinance rates at the expense of fees. The more you pay at closing the less benefit you’ll get from the lowest refinance rates. It’s not just a one-time closing cost you pay for your mortgage but an out-of-pocket expense you need to break even recouping before you benefit from lower payments.
The more you pay for things like the loan origination fee or discount points to buy down your interest rate the longer it’s going to break even, if you break even at all.
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