Timing Considerations for Refinancing Your Mortgage

There are a few different reasons why you might consider refinancing your mortgage, from obtaining a lower rate to several others. Many of these will include some important timing-related elements -- choosing exactly when to refinance will often make the difference between a profitable and unprofitable experience.

At Integrity First Lending, we're happy to provide a wide range of services to help Salt Lake City and other Utah homeowners afford the home of their dreams, including refinancing services for a number of different primary purposes. Using the most common reasons why people refinance their homes as our template, let's go through some important timing-related elements to consider if you're thinking about refinancing at any point in the near future.

Securing a Lower Interest Rate

Perhaps the single most common reason why homeowners choose to refinance their mortgages is to secure a lower interest rate. A number of factors can cause the interest rates on your mortgage to change, including economic changes and fluctuations in local real estate markets.

If you're considering refinancing with the hope of securing a lower interest rate, it can be extremely helpful to research these factors as much as possible before beginning the refinance process. The more you know about how interest rates in your area are expected to change, the easier it will be for you to determine when is the right time for you to take out a new mortgage and start repaying at a lower rate.

And when it comes to timing, the goal here is simple: To refinance at the lowest point possible in terms of current interest rates. This isn't always easy to do, as it can require some guesswork about how the market will move in the weeks or months after you refinance. However, if you're able to predict a sustained decrease in interest rates, refinancing at that point can save you a lot of money over the life of your loan. This is one area where a quality lender -- one with expertise on local interest rates and economic trends -- can be an especially valuable resource.

Shortening Loan Term

Another common use of mortgage refinancing among many homeowners is to shorten the term of their loans. The simplest approach to doing this is to take out a loan with a shorter term length, such as 15 or even 10 years.

This strategy can be useful in cases where you're able to substantially decrease your monthly payment by refinancing into a new mortgage with a lower interest rate and a 20-year loan term, even if it means paying more in interest over the life of the loan.

You'll want to consider how much time is left on your current mortgage before you begin shopping for new loans, as well as what refinancing options are available based on that information. For example, if you have just a few years left until the end of your current mortgage, it might not be worth refinancing into a new loan with a longer term.

On the other hand, if you have a number of years left on your current mortgage and can find a good interest rate for a new 20-year loan, it could be well worth your time to go through the refinancing process.

Converting Interest Type

In still other situations, you'll be refinancing to convert your mortgage into a different interest format. By far the most common such approach here is to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.

Switching from an ARM to a fixed-rate mortgage can be a sensible move if you're worried about future interest rate hikes, as it will lock in your monthly payments at today's rates. It can also provide some peace of mind by ensuring that your mortgage payment will never increase no matter what happens to interest rates in the future.

This is another situation where timing can be crucial, as you'll want to make sure that any changes you make will not limit your options for refinancing or extending your loan term in the future. For example, you might consider converting from an ARM to a fixed-rate mortgage right before a scheduled rate hike, to limit your immediate risk.

However, you might also want to look at the possibility of converting from an ARM to a fixed-rate mortgage in anticipation of future interest rate decreases. Rather than being stuck with higher payments due to a possible increase in rates, you can take your chances on getting a lower payment by choosing to lock in your current rates.

Tapping Into Equity

Whether to consolidate debt, cover emergency expenses or a few other reasons, more and more homeowners are using mortgage refinancing to access the equity they've built up in their homes. In many cases, this can be a much cheaper option than taking out a personal loan or credit card debt. This is sometimes known as a "cash-out" refinance, where you borrow more money than you currently owe on your mortgage and receive the difference in cash.

When considering this strategy, it's important to be aware of two things: Firstly, the interest rates available on home equity loans are usually much higher than those on mortgages, so you need to be sure that you're getting a good deal. Second, you'll want to make sure that you don't end up taking on more mortgage debt than you can afford. Just like with any other type of loan, it's important to stay well within your budget when taking out a home equity loan.

As you can see, timing considerations are crucial when it comes to refinancing your mortgage. This is particularly true if you're looking at doing a cash-out refinance or converting from an ARM to a fixed-rate mortgage, as these approaches require more planning and thought than the average refinance.

For more on this area, or to learn about any of our mortgage rates or quality home loan services in SLC or surrounding areas, speak to the team at Integrity First Lending today.