When Is The Time To Refinance Your Home?
The biggest household expense for any homeowner is the monthly home mortgage, which typically accounts for 20–30% of the household’s net income. Since it takes such a large portion of your budget, it’s one of the first things to consider when trying to lower your monthly expenses.
One effective way to reduce this cost is through refinancing. But the key question is — when is the right time to refinance your home?
Understand Your Mortgage Type
Before deciding to refinance, you must first identify what type of mortgage you currently have. The two most common home loan types are:
- Adjustable Rate Mortgage (ARM)
- Fixed Rate Mortgage
Each one has different refinancing strategies and timing considerations.
When to Refinance an Adjustable Rate Mortgage
An Adjustable Rate Mortgage (ARM) has an interest rate that changes over time, usually after an initial fixed period. For example, with a 2-year adjustable mortgage, your rate will adjust after two years. In most cases, you’ll want to refinance before the rate adjusts, since it’s likely to increase. Refinancing early helps you lock in a lower fixed rate and avoid higher monthly payments later.
When to Refinance a Fixed Rate Mortgage
With a Fixed Rate Mortgage, your interest rate remains constant, giving you more flexibility. However, refinancing too early—usually within the first two years—may not be worth it due to high closing costs. After the initial two-year mark, you can refinance anytime it makes financial sense. Watch for lower market interest rates or changes in your financial goals as key indicators that refinancing might benefit you.
Consider the Closing Costs
Before refinancing, find out how much it will cost to close on the new loan. Although the figures may vary, you can estimate the savings using mortgage calculators. Next, compare your current monthly payment with the new estimated payment under the lower rate. Calculate how many months it will take for your monthly savings to offset the closing costs—this is your break-even point.
Check Your Credit Score
Your credit score plays a major role in refinancing approval and interest rates. Without a good score, getting a favorable refinance deal can be difficult. If your credit needs improvement, start working on it by paying existing loans on time. One way to help rebuild credit is through a secured loan, such as an auto title loan.
Lenders like Embassy Loans can assist you in getting a title loan quickly, helping you improve your credit and manage your finances more effectively.
If you’re looking for a smart way to manage your money or build better credit, Embassy Loans can help. Call us at (833) 839-2274 today to learn more about fast and secure car title loans.
