Timing Your Mortgage Refinance

Timing is crucial when you’re planning a meal or planting that first kiss—and refinancing your mortgage. Unfortunately, you can’t always choose the right time to refinance. Sometimes the right time chooses you.

Saving money with a refinance

Timing your mortgage refinance carefully could save you money. And those savings won’t necessarily come from locking in your rate at the ideal time. Instead, they’ll be a byproduct of your ability to make an informed decision. Choosing to refinance when you have the time to analyze your options can produce more savings than trying to predict the ebb and flow of interest rates. Therefore, your first consideration when timing a refinance is your own schedule.

Think about your work and family responsibilities throughout the year. Identify the months or seasons when you have the least number of distractions. If December has you running madly between local malls, and you travel during the spring for work, then summer may be your ideal refinance season. You’ll have the time and concentration to do the research, run the numbers, read the documents, and make quality decisions.

Cash crunch

Households, like businesses, have fluctuating cash flow. Maybe you get a bonus every February, but your checking account runs dry when you pay property taxes in November. Refinancing your mortgage will probably cost you 3 percent or more of the loan amount in cash upfront. Keep your stress level low by timing this expense to fall when your cash balance is healthy.

Equity support

The value of your home could limit the amount of cash available to you. If you need a cash-out refinance, your home’s current value should be about 20 percent higher than the loan amount you’re targeting. Say, for example, that you want to refinance the mortgage for $350,000. If the lender requires a 20 percent equity cushion, your home would need to be worth $437,500.

Housing values are unpredictable right now. If your property is close to your value threshold, proceeding with the refinance quickly may be your safest option. On any given day, a few new properties could hit the market, priced to sell. That potentially impacts your home’s value and your ability to cash out equity. 

Rate adjustments

A second factor that may have you rushing to refinance is an upcoming rate adjustment on your adjustable-rate mortgage (ARM). Before you start shopping refinance options, though, calculate the impact of the adjustment. Rates are low right now, and a rate change may not be as awful as it sounds. Your payment might even go down. Ask your lender for help if you aren’t sure how to estimate the new rate and payment. If you find your payment is likely to increase, at least you know your situation. You can then compare payments on your refinance options to what your new ARM payment will be.

If you can plan your refinance to suit your schedule and cash flow, then do it. If other factors are pushing you to refinance sooner rather than later, you’ll have to make the best of it. Clear your head, count your pennies, and get started.