Tuesday, June 1, 2010

When is the best time to refinance home mortgage loans?

You may be wondering when the best time to refinance home mortgage loans. This can be tricky, as there are many factors surrounding refinancing that will have a bearing on whether now is the best time, or whether you should wait.

Economic Conditions
Interest rates are dictated by economic conditions. Often, the government may use higher interest rates to level out inflation, and dictate consumer spending. When consumers are overspending, causing prices to rise, interest rates will get higher to increase prices, which will slow down spending. However, when the economy slows down, interest rates will drop to encourage consumers to spend again, and take out low interest loans. So one of the best times to refinance your home loan will be when the economy is at a slow point, and interest rates are lower.

Your Credit History
Even though you have had a loan before, and are now thinking about refinancing it, you still need to have a good credit score to get the lowest possible interest rates and the best deal on your refinance. It is always better to get your credit report from the three major credit reporting bureaus before applying for your refinance to make sure that there are no errors in it, and to get an idea of what your credit score is likely to be.

How Long You Have Had Your Loan
The amount of time that you have had your loan is also an important factor; some lending institutions don't like it when borrowers refinance soon after getting a loan. As a rule of thumb, it is best to wait at least 4 to 7 years before considering refinancing.

Other reasons To Refinance
Often, an increase in the market value of housing can be a great time to refinance, especially if you plan to consolidate some debt, or get some equity from your home. If your income has increased, or if you have been repairing your credit, refinancing may also be a good option for you, as you may be able to get a much lower interest rate, or renegotiate the terms of your home loan when refinancing.

Make sure that interest rates are lower than 2% of what you are already paying, and calculate the costs of the new refinance carefully, as well as look into any penalties or charges that may be added by your lender. Before refinancing your existing mortgage, make sure that you shop around for the best deal, and compare the interest rates, as well as terms and conditions offered by these lending institutions.


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