When is the right time to refinance? This is one of the most common questions we receive from clients, and it’s a very good question. Deciding when to refinance is an important decision you shouldn’t take lightly. There are several factors at play, from where in the life of your loan you are, to your current financial situation. Let’s take a look at when to make the most of refinance rates in Virginia.
Why Do Homeowners Refinance?
First, it’s important to understand the benefits of refinancing in the first place. Refinancing is the process of paying off a current home mortgage loan and replacing it with a new one. There are a variety of reasons homeowners choose to do it. Obtaining a more favorable interest rate is one of the most common reasons. Others include to shorten the mortgage term, change the loan type (for instance, from a fixed-rate to non-fixed rate) or to access home equity for major home renovations or business investments. Now that we understand the reasons homeowners choose to refinance, let’s take a look at how you can make the most of refinance rates in Virginia.
Take a Look at Your Current Rate
When looking to refinance, your first step should be comparing the current rate you have to the going rates in the market. Seeing as this is one of the primary reasons for a refinance, it’s important to ensure that you will actually be able to get a better rate if you take on a refinance. Typically, it’s recommended to seek a refinance if you can reduce an interest rate by 2%. However, for certain financial circumstances, a 1% decrease may be reason enough to seek a refinance. Confer with your mortgage broker or lender to ensure that you would be able to decrease your current interest rate enough for a refinance to be viable.
Shortening a Loan Term
Another viable reason to refinance your home is to shorten the loan term. Shortening the loan term may not affect your monthly payments much, but will allow you to pay off the loan in a much shorter amount of time. This can be beneficial for a variety of situations, including those looking to sell their homes soon.
Changing the Type of Loan
When you’re looking to acquire favorable refinance rates in Virginia, you may want to look at changing the type of loan. When rates are falling, it may be financially wise to change your mortgage from a traditional fixed-rate mortgage to an adjustable-rate mortgage. ARMs have rates that are updated over time to reflect the mortgage market. The advantage is that monthly payments are typically lower, and if rates are on a downward trajectory, you may be able to take advantage of a good market to score a lower interest rate.
We hope the scenarios we’ve outlined will help you better understand when to make the most of refinance rates in Virginia. If you aren’t sure which refinance option is best for you, don’t hesitate to speak to the expert team at Federal Hill Mortgage. As the number one ranked loan originators on the East Coast, our expert team can help you explore options that are right for your personal needs. To get started, fill out our refinance application today.