The decision to apply for home refinancing should not be considered frivolously. Neither should such a loan be entered into lightly. It is important to realize that even if your reasons for obtaining a new loan are compelling and the decision to apply has been carefully considered, it still may not be the best choice to make at the present time. There are several outside influence that can affect the timing both of your application for the loan and your signature on the dotted line, obligating yourself to repay. Here are some tips about these factors that you may consider before looking for new financing.
When rates are best
You will want to watch the home refinancing rates or interest rates on mortgage loans to determine if they are increasing or decreasing. The ideal time to get a loan of any kind is when the interest rates reach the bottom. This assumes that the interest rates are fixed. It also assumes that you can determine when the interest rates have reached the lowest point and will probably be increasing in the near future. In practice, your crystal ball is probably not that effective. If you are near the bottom of a interest rate cycle, it is probably the best you can hope for. You certainly don't want to obtain a fixed rate loan when interest rates are high unless you are positive that they will be going higher yet.
When you will not be moving
If you will be relocating in the next three years, it is probably not a good time to do a home refinancing application on your house. Typically, it will take at least that long to recoup the costs of obtaining the loan so that you can see an improvement in your financial situation. If you are planning to stay in the home for several years, then obtaining refinancing on your mortgage can pay off substantially.
When the housing market is headed up
If you are planning for home refinancing, another element to consider is the entire housing market in your city or neighborhood. If housing prices are increases and the economy in the area is strong, increasing the debt load on your home can be beneficial, especially if you have wise plans for the use of the freed-up funds. In this instance, the equity will be less, but will continue to grow, because housing prices are increasing in the comparable houses.
When you can afford to repay the new loan
Applying for home refinancing can affect the amount that you pay in a positive or negative manner. If you end up paying less under the refinance, then you've bettered your financial picture. If, however, your total cost for the refinance increases significantly, it may not be the best time to complete the process. Trying to borrow your way out of debt is never effective. Instead, take a careful and realistic look at the cost of the loan, your ability to pay and your reasons for acquiring the refinancing and make your decision from there.
