Homeowners with mortgages tend to forget that the current mortgage they hold is negotiable. Meaning: it can be replaced at any time with a new mortgage.
The reason why most homeowners do not think much about their option to refinance is that paying one's mortgage becomes a bit of a habit. Except for the occasional changes to property tax values or homeowners insurance (which might be rolled into one's mortgage payments), mortgage payments are the same month in and month out.
However, savvy homeowners who are paying attention to interest rates will notice that rates tend to raise and then decline over time. This is a natural cycle that is never predictable in its exact timing. However, by watching the trends, a homeowner can time a refinance in a way that is advantageous.
Of course, if you are like most of us, your home is your most valuable asset. If you currently have equity in your home, you actually have the opportunity to turn that into cash through a refinance. Most people want to just let that equity sit tight in case it is needed for a rainy day or later in life for retirement. However, if you are facing large medical bills, a child starting their college education, or other major expenses in the coming months or years, refinancing is a way to get some of that equity and turn it into cash you can use.
Even if you do not have much equity in your home - or if you do but do not have any reason to spend it just yet - there are other good reasons to refinance home mortgage loans. The two principle reasons are: 1. To reduce your monthly payments by securing a lower-interest loan; or, 2. To reduce the total cost of your loan by getting a shorter term loan. Of course, both are also possible in some cases.
If you are considering refinancing, here are some tips which can help you make good decisions along the way:
1. You will need to decide between fixed-rate and adjustable rate mortgages. Fixed rate options are usually ideal when rates are low, since you are able to lock in the low rate.
2. Choose a shorter loan term if you can afford the relatively higher payments, since doing so will reduce the total cost of the loan. However, choose a longer loan term if you are on a budget and want to keep payments as low as possible.
3. Prepare as much of your personal and financial information as you have in advance of starting the loan process. You will be asked for information on your income, assets, debts, and other items at some point during the application process.
4. Stay in touch with your lender during the closing process, including confirming whether you will need any special documentation ready at closing.