The best times to consider refinancing are when you’ve just gotten a promotion at work, and you’re planning to stay in your home for several years or make some home improvements. Or you’ve finally paid off that credit card and your credit score has improved.



 

Tip of the Week

If there’s a big change in our lives, such as getting married or buying a new car, one of the first budget items we look to adjust is our insurance coverage. But what about those other moments that may warrant refinancing a home mortgage?

The best times to consider refinancing are when you’ve just gotten a promotion at work, and you’re planning to stay in your home for several years or make some home improvements. Or you’ve finally paid off that credit card and your credit score has improved.

Bob Walters, chief economist for Quicken Loans, says homeowners should always consider refinancing whenever they can reduce the amount of interest they pay on their mortgage loans.

“Most of the ‘rules of thumb’ regarding refinancing are dead wrong,” Walters said. “I’ve heard people say that a 2 percent drop in interest rate is needed to refinance. Contrast that with the reality that a person with a $400,000 mortgage could do a no-cost refinance and only lower their interest rate by 1/8th percent, and they will still save more than $10,000 over the life of the loan.”

Some other tips from Walters:

- It’s more than lowering the rate. Other reasons to refinance include reducing the term of the mortgage and switching from a fixed rate to an adjustable rate (and vice versa). Sometimes a higher rate is even helpful in saving money, such as when eliminating mortgage insurance or taking cash out of your home to get rid of other debt.

- Don’t get trapped in rate talk. “The worst mistake someone could make when refinancing their mortgage is to begin dialing mortgage companies to ask them, ‘What is your rate on a 30-year fixed?’” Walter said. “That is akin to having a sore throat and dialing doctors to ask them what their rate is for antibiotics. A good doctor would want to examine you and make sure antibiotics are indeed the best treatment and to make sure something else isn’t going on. A good mortgage banker will want to ask you many questions to deeply understand your situation so they can find the best mortgage option for you.”

- There’s no limit. After considering the total impact of a refinancing transaction, it makes sense to refinance every time you can save money. So, do it more than once, if necessary.