If your home or current mortgage meets one or more of the three conditions below, it is a good time to consider refinancing:
1. Increased Home Value
If conditions in your local market have increased your home value, your equity has gone up, too. With high equity, you could get a new mortgage loan on better terms. Or you can convert this equity into cash to spend on whatever you want. Plus, with the high equity – at least 20% equity and more in your home value – you can refinance and cancel the private mortgage insurance (PMI), which will save you a lot of money during the lifetime of the mortgage.
2. Interest Rates Are low
As general rule, if you can get an interest rate at least half a percent lower than what you are currently paying, it is a good time to consider refinancing. If you can get more than a percent, it will be a great idea. A lower rate can get you a shorter term, lower monthly payment, saving over the lifetime of the loan.
3. Your Current Mortgage Is Relatively New
In the early part of many mortgages, most of the monthly payment goes toward the interest. If you can get a new mortgage that applies more of your payments toward the principal, that will be good. You will be able to build your home equity faster. It is like paying money to your own pocket.