A good time to refinance is when a homeowner suffers from high interest rates or wishes to lower his payment each month, according to Dr. Don Taylor for Bankrate. Homeowners can also combine a home equity loan and a first-time mortgage to consolidate debt and lower monthly payments.
There is no reason to get out of a fixed-rate mortgage and into an adjustable rate mortgage with a lower interest rate because the two loans are virtually the same in a climate of low interest rates. A person may want to get out of an ARM if long-term security is desired, but refinancing into an ARM is a better option because the loan comes with lower interest payments, explains Taylor. However, a holder who is in an ARM mortgage does not need to refinance if the length of the loan is not long.
Getting a lower interest rate at a minimum of 1 percent is reason enough to refinance, reports Investopedia. Reducing interest rates can also add more equity to the home.
Homeowners must be careful when refinancing because stretching out the lifespan of the mortgage can result in more interest payments over time, claims Taylor. Refinancing is not necessary if the homeowner does not intend to remain on the property for a long period. Paying off the closing costs can take two years on average. For instance, payments that are lowered to $157 a month can take 24 months to pay off the debt that stems from the average closing costs.