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When is the Right Time to Refinance?

Interest rates have been slowly declining, making home refinancing an appealing option for many homeowners in La Jolla. However, refinancing is not the best option for everyone and a variety of things must first be taken into consideration. Here is some advice to help you decide whether you should refinance your home.

  1. When interest rates are down. When interest rates are down, homeowners are drawn to locking in the current, lower rate on a new mortgage for their home. A rule of thumb in deciding whether the savings of a lower rate is worth it is if your mortgage rate would decrease at least half a percent. An even more reliable figure is if your mortgage will decrease by two percent.

  2. When the introductory rate of your ARM expires. If you have an adjustable rate mortgage (ARM) and the expiration of your low introductory rate is coming up, consider switching to a fixed mortgage with the current lower interest rate. This option, however, is not beneficial to homeowners who plan to move in the next few years.

  3. Can afford to pay higher monthly payments of a shorter term mortgage. Many homeowners are drawn to the long term loans that have lower monthly rates, but if you're able to pay the higher monthly payments of a shorter mortgage, do it. The faster you pay off your mortgage, the better. Though you'll be paying more up front, eliminating your mortgage can save you money and financial headaches in the long run.

  4. Your credit score has improved. If your credit score has improved since you bought your home, you will likely be able to get a loan with lower interest rates. Doing this can save you money on your monthly payments.

  5. You plan to stay in your home for awhile. Refinancing is not a good option if you're planning on selling your home in a few years. Make sure you stay in your home for the duration of your new, refinanced mortgage length. When you refinance, you will also have to pay closing costs and some additional fees that may be tacked on by lenders. To make refinancing worth it, plan on staying in your home longer than the time you would need to break even from the costs of your refinance.

Refinancing isn't right for every homeowner and you should carefully look at your finances and long term goals before you consider refinancing your home. For more information about refinancing and if it is the right decision for you, contact a local La Jolla real estate agent.
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