Timing is crucial when you're planning a meal or planting that
first kiss-and refinancing your mortgage. Unfortunately, you can't
always choose the right time to refinance. Sometimes the right time
Saving money with a refinance
Timing your mortgage refinance carefully could save you money. And
those savings won't necessarily come from locking in your rate at
the ideal time. Instead, they'll be a byproduct of your ability to
make an informed decision. Choosing to refinance when you have the
time to analyze your options can produce more savings than trying
to predict the ebb and flow of interest rates. Therefore, your
first consideration when timing a refinance is your own schedule.
Think about your work and family responsibilities throughout the
year. Identify the months or seasons when you have the least number
of distractions. If December has you running madly between local
malls, and you travel during the spring for work, then summer may
be your ideal refinance season. You'll have the time and
concentration to do the research, run the numbers, read the
documents, and make quality decisions.
Households, like businesses, have fluctuating cash flow. Maybe you
get a bonus every February, but your checking account runs dry when
you pay property taxes in November. Refinancing your mortgage will
probably cost you 3 percent or more of the loan amount in cash
upfront. Keep your stress level low by timing this expense to fall
when your cash balance is healthy.
The value of your home could limit the amount of cash available to
you. If you need a cash-out refinance, your home's current value
should be about 20 percent higher than the loan amount you're
targeting. Say, for example, that you want to refinance the
mortgage for $350,000. If the lender requires a 20 percent equity
cushion, your home would need to be worth $437,500.
Housing values are unpredictable right now. If your property is
close to your value threshold, proceeding with the refinance
quickly may be your safest option. On any given day, a few new
properties could hit the market, priced to sell. That potentially
impacts your home's value and your ability to cash out
A second factor that may have you rushing to refinance is an
upcoming rate adjustment on your adjustable-rate mortgage (ARM).
Before you start shopping refinance options, though, calculate the
impact of the adjustment. Rates are low right now, and a rate
change may not be as awful as it sounds. Your payment might even go
down. Ask your lender for help if you aren't sure how to estimate
the new rate and payment. If you find your payment is likely to
increase, at least you know your situation. You can then compare
payments on your refinance options to what your new ARM payment
If you can plan your refinance to suit your schedule and cash flow,
then do it. If other factors are pushing you to refinance sooner
rather than later, you'll have to make the best of it. Clear your
head, count your pennies, and get started.