Refinancing your mortgage can be a great way to lower monthly payments, save on interest, or adjust the terms of your loan. But deciding when to refinance isn’t always straightforward. It depends on a combination of factors like your current mortgage rate, financial situation, and timing in the market.

At Be My Neighbor Mortgage, we help homeowners determine the right time to refinance, providing personalized guidance for every step of the process. Here’s everything you need to know to decide if now is the time to refinance your mortgage.

What to Know Before You Refinance

Before jumping into a refinance, it’s essential to crunch the numbers and evaluate the benefits. Refinancing comes with costs, so you need to understand the potential savings to see if it’s the right move.

• Current Interest Rate: Check your most recent mortgage statement to see what rate you’re currently paying. Even small changes in interest rates can lead to significant savings.
• Amount to Refinance: Whether you’re refinancing the remaining balance or taking out a larger loan (e.g., for home improvements or to pay off higher interest debts), knowing the exact loan amount will help you estimate closing costs.
• Break-Even Point: To determine if refinancing is worth it, calculate the break-even point by dividing your closing costs by the monthly savings. If you save $100 a month and the refinance costs $3,600, it will take 36 months to break even.

When Is the Best Time to Refinance?

Refinancing isn’t just about finding a lower interest rate—it’s about choosing the right time for your financial situation.

Lower Interest Rates

Historically, homeowners are advised to consider refinancing if interest rates drop by 1% or more. However, even a half-point drop can make a difference, especially if you’re refinancing a large loan.

Here at Be My Neighbor Mortgage, we recommend focusing on the real numbers rather than generic advice. Use our mortgage refinance calculator to see how much you could save.

Seasonal and Economic Factors

Did you know that winter might be the best time to refinance? During the slower real estate season, lenders tend to lower rates to attract business. Conversely, summer, with its higher demand, may result in higher rates. Moreover, economic events—such as stock market drops, rising unemployment, or inflation—can also cause lenders to adjust mortgage rates.

Types of Refinancing Options

When refinancing, you have options depending on your goals:

Rate-and-Term Refinance

If your goal is to get a better mortgage rate or change the length of your loan, a rate-and-term refinance is for you. For example, refinancing from a 30-year mortgage to a 15-year term can help you save on interest, though your monthly payments will be higher.

Cash-Out Refinance

Need access to the equity in your home? A cash-out refinance allows you to borrow more than what you owe on your current mortgage, turning your home equity into cash. This is great for funding home improvements, paying off debt, or other large expenses—but be cautious. You’ll increase the size of your mortgage, which could lead to higher payments.

VA Refinance Options

Are you a veteran homeowner? There are specific refinancing options available to you. Click here to read more.

Is Now a Good Time to Refinance?

In the past year, mortgage rates have fluctuated. For example, rates peaked around 8%, but have since dropped closer to 6.5%, making now an attractive time for many homeowners to refinance. In fact, if rates drop even further, as predicted, even more homeowners could benefit from refinancing.

If you’re unsure whether now is the best time to refinance, consider your break-even point. If it takes you two to three years to recoup the closing costs, make sure you plan to stay in the home long enough to enjoy the savings.

At Be My Neighbor Mortgage, we help you evaluate your situation to ensure refinancing is a financially sound decision as your mortgage consultant.

Eligibility Requirements for Refinancing

To refinance, you’ll need to meet some basic eligibility requirements:

• Credit Score: A score of 620 or higher is typical for conventional loans. If you’re looking for an FHA refinance, you may qualify with a score as low as 580.
• Home Equity: For a cash-out refinance, you’ll need at least 20% equity in your home. Less equity may still qualify you for refinancing, but it could come with higher interest rates or mortgage insurance.
• Debt-to-Income (DTI) Ratio: Lenders typically want to see a debt-to-income ratio below 43%. This helps ensure you’ll be able to manage your mortgage payments. Refinancing may be able to lower your Debt-To-Income ratio.

Changing Loan Terms: Should You Adjust the Length of Your Mortgage?

One advantage of refinancing is the option to change your loan’s term. Homeowners often refinance from a 30-year to a 15-year loan to pay off their mortgage faster and save on interest.

However, you can also extend your loan term to lower monthly payments. Just remember that a longer loan term means paying more in interest over time.

Customizing Your Loan Term

You don’t have to choose between a 30-year or 15-year mortgage when you refinance. You can request a specific loan term to match your financial goals.

For instance, if you’re five years into your 30-year mortgage, you can refinance into a 25-year loan to keep the same payoff date.

Other Reasons to Refinance

Beyond interest rates and loan terms, there are other reasons to consider refinancing:

• Switching Loan Types: If you started with an adjustable-rate mortgage (ARM) and want to lock in a stable payment, refinancing to a fixed-rate mortgage is a good option. Conversely, switching to an ARM could make sense if you plan to move soon.
• Removing Mortgage Insurance: If you have an FHA loan with mortgage insurance, refinancing into a conventional loan once you have 20% equity could eliminate the need for mortgage insurance.

TL;DR

Refinancing your mortgage can save you money, lower your payments, or give you access to home equity, but timing is key. Evaluate your current mortgage rate, closing costs, and how long you plan to stay in your home to determine if refinancing is the right choice.

Be My Neighbor Mortgage can guide you through the process and help you determine the best time to refinance based on your unique financial situation.