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Thinking of refinancing is always a doable option could be a considerable mistake.  Refinancing at the wrong time can be disastrous.  An example of when refinancing is a mistake is when your credit score has lowered since you took out your original loan on your home and you do not stay on the property long enough to justify the cost of refinancing.  Another example is when your interest rate hasn’t lowered to offset the closing costs that are associated with refinancing

Closing Cost Retreival

You need to figure out how long you will need to stay on the property in order to justify paying for refinancing closing costs. This is tremendous, mainly when you intend to sell your home sooner rather than later. Online refinancing calculators are a great resource to use when trying to determine how long you will need to reside at the property after refinancing to make such a venture worthwhile. You will need to input your existing balance, existing interest rate, and the new interest rate to see the estimated new monthly payment on your mortgage. It will also give you an estimated time you will need to reside in your residence in order to recoup the closing costs..

Credit Score

A lot of homeowners are under the understanding that when interest rates drop it is the best time to refinance. If interest rates have lowered and so has your credit score, it may not be an opportune time to refinance. You need to carefully consider your current credit score in comparison to your credit score when you secured your original mortgage. If there is a significant interest rate drop and your credit score has also lowered, you may still benefit from refinancing but, that scenario is unlikely. Take advantage of free refinancing quotes to get an estimate of whether or not you should refinance.

Are Interest Rate's Low Enough?

Regarding interest rates, you need to consider if the interest rate drop is significant to justify the cost savings you might receive. A classic mistake is forgetting to consider the closing costs of the refinance. Some examples of this cost are application fees, origination fees, appraisal fees to name a few. These fees can add up and directly affect the savings you may receive from the lower interest rate. In some extreme cases, the cost of closing may be more than the savings you would receive from the lower rate.

Not Always A Mistake

Even though refinancing is not always the optimal situation it may still provide you with some benefit. This may occur when either the interest rates drop slightly but not enough to result in an overall savings or when a homeowner consolidates a considerable amount of short term debt into a long term mortgage re-finance. Although most financial help and advisors may warn against this type of financial approach to re-financing people sometimes tend to go against sound advice which could increase their overall monthly cash flow by reducing their house payments. This scenario is when the homeowner is making a good decision for personal need.

 

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