While people decide to refinance their mortgages for a number of reasons, choosing the right timing for a refinance can have a large financial impact. There are a number of time-dependent factors that contribute to the overall cost of mortgage refinancing.
When interest rates drop, it is an excellent time to refinance your mortgage. Lenders lower the interest rate associated with mortgages in response to overall interest rate trends, and a lower interest rate not only means lower monthly mortgage payments, but it also means that you could save thousands of dollars in interest over the life of your mortgage loan.
Another sign that is may be an advantageous time to refinance your mortgage is that your income has increased. Lenders look at your debt-to-income ratio when they evaluate your creditworthiness and your ability to repay a mortgage loan; people who have a lower debt-to-income ratio can qualify for mortgages with lower interest rates, since lenders view these borrowers as low-risk.
If your credit score is less than perfect, there are steps you can take to clean it up and raise your score. Make sure that you are fastidious about making all your payments on time, and be sure that your credit report contains no errors. The credit bureaus allow people to obtain a free annual credit report, so it won't cost you more than a few minutes of time to find out exactly what is on your credit report. Once your credit rating is at a high enough level, the timing is excellent to refinance your mortgage because lenders reserve their mortgage loans with the lowest interest rates for borrowers who have near-perfect credit histories.
If you find yourself with a bit of extra cash due to an event such as a tax refund or a bonus from your job, it might be a good use of the money to pay for the closing costs when you refinance your mortgage. Although closing costs can be added to the loan amount or paid for with a no closing cost mortgage, both of these actions can be more expensive in the long run. By increasing the amount of your mortgage, you raise your monthly payments, and by choosing a no closing cost mortgage, you pay a higher interest rate than you would if you paid for closing costs up front.
Even when the timing is right to refinance your mortgage, it is still important to talk to a number of different lenders in order to find the best deal in mortgage loans.