Not Knowing When to Refinance Can Lose You Thousands on Your Loan by Daria

As tempting as a refinance can sound, especially if you need cash back from it, but knowing when to refinance is as important as the new loan itself. Your current financial status, your current interest rates, how long you have been paying your loan, and the outlook of your immediate financial future all factor into to when it makes sense to refinance and when it is best to ride things out. Be sure that you will benefit from a refinance, both in the short term and the long term.

Your first step is to research the details of your current loan. If you are close to paying it off, it may not make sense to change it unless it has a high rate. You also want to check to see if it has a fixed or variable interest rate. If it is fixed at a good rate it may be best to leave it alone. If your loan is relatively new and you can get a better rate it would make sense to refinance that loan. The interest you pay over the life of the loan will be much less. It isn't just the monthly payment that matters here, rather, the total amount you will pay over the lifetime of the loan.

If you have a primary mortgage and then a separate home equity loan or line of credit it may be beneficial to refinance those into one new loan. Sometimes a primary loan is excellent and home owners don't want to risk losing the good rate by refinancing it. If that is the case, then just refinance the home equity loan or line of credit into a new loan. Again, timing is the key. Looking at the long term interest as well as the monthly payments is crucial when making a good decision. If you have been good about paying your primary mortgage on time then your bank may be willing to refinance at your same excellent rate even if it is lower than what is being advertised.

If you have a poor credit report you may want to hold off on applying for a refinance while you clean up your credit score. There is much you can do to raise your credit score and thus increase your chances for a loan approval as well as a good rate. Eliminating credit card accounts that you don't use anymore is a first step. Getting bad debts off your report and making sure everything on there is actually yours is also necessary. If you have been spotty with making your mortgage payments on time, then stringing together a full year of on time payments will boost your chances of refinance success.

Knowing when to refinance is probably the most important factor in your decision to change up your financial situation. Timing is key!

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