When Is The Right Time To Refinance My Mortgage? | Boca Raton Real Estate
A long-term loan can be a tricky prospect. The timing of paying it down can affect not only your bottom line, but also your taxes, credit, and ability to pursue future loans. Refinancing a mortgage is part of this challenge - a stressful miasma to some, a unique opportunity to others. With interest rates as high as they've been in decades, the time and place to refinance matters more than ever. Our Realtors have insisted to their clients that despite the high rates, the price of waiting for unknown speculation to potentially come true is often more financially damaging than buying now. If you're hesitant about high rates and are buying with the intent to refinance in the future, read today's blog and consider these examples as indicators that it might be the right time to refinance your Boca Raton home.
If you can reduce your rate by 1% or more
Refinancing isn't something you can do whenever you just feel like it. Certain prerequisites must be met in order to ensure your refinance is successful. In the event your refinancing lender provides a rate decrease by a minimum of 1%, you should consider it time to refinance. With rates standing above 7% as of today's writing, that single percentile won't return you to the pre-COVID days but will surely reduce your monthly payment by a considerable amount and allow you to pay your mortgage faster with the leftover funds when possible.
You have long-term plans to stay in the home
It's much easier to wheel and deal with your mortgage, HELOC loans, and other financial products tied to the home when you have no intentions of leaving. Your presence in the home ensures you have the time to recoup the losses from closing costs and can absorb any additional expenses without the cost of taking out a new loan. Begin by calculating your breakeven point, or the time when the closing costs would be eliminated by the savings. For instance, if your closing costs were $5,000 and you stand to save $100 per month with a refinance, you will need 50 months to recoup those costs. Be sure you can reap the benefits of homeownership and cover your bottom line before looking outward toward new opportunities.
You've experienced a noteworthy financial windfall
Whether it's a large inheritance, an unexpected raise, or some other major financial break, you can do a lot of damage to an active mortgage with a few extra grand in your life. If not setting up an emergency fund, there are several ways to eliminate significant concerns tied to refinancing with a sudden chunk of new money. The origination fees that you may have shied from before are no longer a problem. Recoup your closing costs and handle the origination fees of your new loan with aplomb!
Tap into home equity to deal with an emergency or large purchase
We strongly advise against using home equity or a financial windfall to purchase a luxury item, unless that item involves a natural upscaling of your existing version. For instance, using the post-refinance funds to tap into a HELOC can yield an upgraded couch, new cabinetry, or a new and improved refrigeration system. These may be products that veer into the luxurious, but they are not extravagances that put form before function. In addition, you may be able to use the freed funds to make a big ticket purchase like a new car, pay it down with that extra money, and avoid financing yourself into another interest-bearing loan.
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