The biggest household expense for any homeowner is the monthly home mortgage. Typically, this cost accounts for 20-30% of the household’s net income. It’s a hefty expense so it should be without a doubt, one of the first things to tackle when you are trying to lower your monthly expenses. To lower the cost, you just need to think about refinancing. The question is: when do you refinance?
Well, before you do anything, you need to find out what type of loan you have. The 2 most common types of loans for a home are the adjustable rate mortgage and the fixed rate mortgage loan. The adjustable rate mortgage will give you a clear indication of when the best time to refinance is. With this type of loan, the interest rate increases incrementally over time. For example, with a 2-year adjustable mortgage, the rate will adjust after 2 years. In this case, you will most certainly want to refinance your home loan before the rate adjusts.
Fixed Rate Mortgages
With a fixed rate home mortgage, you have a little more of a range to choose from. One thing to keep in mind is the 2-year adjustment comes into play here too. It is usually too costly to refinance any sooner than 2 years. The reason is because of all the closing costs that are associated with refinancing. The good news is that you can refinance at any time beyond the first 2years. The question then becomes: when is a good time?
The first thing to do is to find out roughly how much it will cost you to close on the new loan. Now the numbers will only be estimates since nothing is written in stone until you sign the real loan documents. The next step is to compute the monthly mortgage payments based on the new interest rates. There are mortgage calculators that will help calculate this figure for you. The final thing to do is to take the difference in the monthly mortgage amount and calculate how long it would take you to recoup the cost of closing with the money that you save each month.
One caveat to all of this your credit scores. Without a good one, a refinance is hard to come by. If you find yourself in that position, you need to go on a crash program to improve. Since getting a loan and paying it back on time is one of the best ways to improve your score, you may wish to talk to the folks at Embassy Loans about an auto title loan that will put you on the right path.