When To Refinance Your Home Loan

Today more and more people are turning to home refinancing as a way to put some extra cash in their pocket and decrease their monthly mortgage payment. Depending on the circumstances of your current home loan and the financial market at the time you first negotiated, this can be a good idea. It can also be a big mistake. So how can you tell if refinancing your home will help or hurt your overall financial situation?

First of all, take a look at the interest rate on your current home mortgage. Do a little research and compare your rate to the average rate in the market today. Even if your rate is higher than the current average, that doesn't mean it's time to switch. Consider your credit rating, and take into account how it may have changed since you first financed your mortgage. If you had a lower credit score then than you do now, then it may very well be time to refinance. If, on the other hand, your credit has gotten worse, you might want to hang on to the rate that you have. The advantage of the higher credit score you had in the past may outweigh any fluctuations in the market that have caused average rates to go down.

Also consider whether your current rate is fixed or variable. If you have a fixed rate on your mortgage, although it may be a little higher than the current average, it might be worth holding onto just for the fact that you know it won't go up anytime soon. A variable rate is trickier. What can you get if you refinance? Would it be worth it to you to be locked in on a new mortgage with a fixed rate, even if that rate was slightly higher than what you're getting now? With rates in today's market fluctuating as much as they are, the stability of a fixed rate is a definite advantage to any home loan.

Ask yourself a few more questions before you decide whether or not to refinance. Are you planning on staying in your home for awhile? A smaller monthly payment means it will be that much longer before the house is yours; so you may want to consider how much time you're willing to invest in paying off this property. Has the value of your home changed since your mortgage was set? Have you made improvements to the property that might garner you a higher rate? Have you kept your account in good standing so that it can be used as a bargaining chip?

Too many people leap at the chance to refinance, thinking only of the smaller monthly payments and the cash in hand. Refinancing can have some serious financial results, both good and bad. It's important to keep in mind that when you deal with your home loan, you're dealing with more than just money. The roof over your head is also at stake. So make the wise, long-term decision, do your homework, and refinance when the time is right- and not a minute sooner