FinanceReal Estate May 10, 2016

Is Now the Right Time to Refinance?


Even though interest rates are on the rise, they are still at historic lows. If you have an Adjustable Rate Mortgage (ARM), it may be a good time to consider refinancing your home.  If you have thought about refinancing in the past, but were worried about being locked into a rate, getting in on the current low rates could be very financially advantageous.  It’s expected that rates will continue to rise over the new months, so waiting too long to refinance may end up getting you a higher rate.There’s no one-size-fits-all answer to whether your should refinance, so here are a few of the main considerations:

How long does your introductory rate last?


Most ARMs have a fixed rate for the beginning of the mortgage. This is an introductory period (usually 3-10 years) when your rate will remain constant before it can be adjusted. If you have several years left in your introductory period, you can monitor interest rates for a while before making a decision. But if the intro rate is ending soon, it’s a great time to explore refinancing at a fixed rate.  Be sure to take note of what the rate cap is for your loan.  Usually, your APR cannot increase more than a certain percent during each period (so if you’re at 5% and you have a cap of 2%/year, your rate could go as high as 7%).  If you’re not willing or prepared to pay the max of what the cap could be, refinancing may be an excellent option.

How long are you staying?


If you plan to sell your home soon—especially if you’re still on a fixed introductory rate—there’s not much motivation to refinance. But if you’ll be at your home indefinitely, you should consider your refinancing options. You could eliminate the stress of not knowing what your future mortgage rate and payments will be.  This also could allow you to put more into savings, since you’re no longer having to account for the possibility of a dramatic increase in your mortgage payment.

What’s your loan balance?


The change in your mortgage payment will of course be determined in part by your remaining balance. If you owe $100,000-$200,000, a new interest rate may not greatly affect your monthly payment. On the other hand, if you owe $500,000, a change in interest rate could lead to a much higher payment.

Other factors


The previous items are just a few of the factors that should go into a decision about refinancing. Changes in income and your current credit score should also be considered, so be sure to weigh your options and make an educated decision.  Talk to a mortgage professional who can help you figure out if refinancing is right for you.  If you’re in the Portland area, I can point you to a lender who will work with you to figure out your best options.