When is it time to refinance?

Now is the time of lower interest rates, and they are only going up.  There are many factors to consider when deciding if refinancing is right for you.  Before you make any decisions get a home valuation, talk to your trusted lender and check out these tips to find out when the best time to refinance is.

When it lowers your interest rate.

Even lowering your interest rate by 1 percent will save you a substantial amount of money.  For example, a $450,000 loan with a 4.75 percent interest rate refinances into a 3.6 percent interest rate and will have a savings of an estimated $300 a month.

When it will shorten the length of your loan.

We all know the importance of being debt-free, but when you refinance you add extra time onto your loan.  Many homeowners refinance to shorten the length of their loan, trading a 30-year fixed-rate loan for a 15-year term.  Depending on rates you could use the equity in your home to shorten the length of time without lowering your monthly payment.

When a fixed rate plan is better.

While ARMs start out offering lower rates than fixed-rate mortgages, periodic adjustments often result in rate increases. When this occurs, converting to a fixed-rate mortgage results in a lower interest rate as well as eliminates concern over future interest rate hikes.

When you can pay off a debt.

If there’s one thing we learned from the real estate crash, it’s that treating our homes like a discretionary spending account can be dangerous. Mortgaging yourself to the hilt and spending the cash on items that don’t appreciate like a car or boat could spell disaster.  But if you use that money wisely for savings or to pay off a high rate credit card, then it’s worth tapping into your home’s equity.

When you have a good credit rating.

Let’s be honest, you probably can’t get approved if you don’t have a good credit rating.  Get your free credit report to check your score and ask your lender for options. You might be eligible for a streamline refi or credit program.

When the break even point is too high.

This is the amount of time it will take for you to recover the closing costs on the new loan. The break-even point is calculated based on how much you pay in closing costs and what your new interest rate will be. For example, if you pay $3,000 in closing costs and your payment only drops by $50 a month, it’ll take 60 months before you break even.  If you move before the break-even period ends you won’t be reaping any significant financial benefits in the long run.

Helen Oliveri is a 12-year real estate professional who loves our community and helping clients achieve their real estate goals is her priority. She is the managing broker of the newly opened Keller Williams Realty Partners, home of The Helen Oliveri Team in Hawthorn Woods, Illinois, where she also resides. Feel free to visit the new office in Cherry Hill Plaza at 101 W. Gilmer Road.  You can reach them online at HelenOliveri.com or 847.967.0022.