5 Tips for Refinancing Your Home Loan

A home loan is something that virtually all homeowners will have to deal with. Depending upon the terms of your particular loan, you may be able to make adjustments to the loan that you've already taken out. Unless you purchased your home when prices and mortgage interest rates were low, you may want to periodically check on the options available to you for refinancing your home loan. This can end up saving you a good deal of money, or help you to manage through a different financial situation than you had when you first took out the loan.

1. Check the Market Rate

It doesn't always make financial sense to refinance your home loan. Before you go about the process of refinancing, check on the information for the loan that you have. Learn about the interest rates that you have on your existing loan, and then about the going market interest rates. This will help you to make an informed decision about refinancing your loan, so that you don't go through with the process unless you have the maximum potential benefit.

2. Set Rate Limits and Goals

A good general rule for refinancing your home loan, is to avoid doing so unless the difference in rate is at least 2 percentage points. This means that your existing loan rate should be at least 2  percentage points higher than the new rate that you'd be able to achieve through the process of refinancing. The reason that this general rule is in place, is because the process of refinancing can otherwise cost you more money than it will save.

3. Move from Adjustable to Fixed Rates at the Right Time

If you have an adjustable rate mortgage, you have paid a premium (in terms of the interest rate, generally) for the ability to change the rate and terms of the loan later on. Take advantage of this flexibility and change the loan to a fixed rate loan when the rates for the market are as low as they're likely to be for a good period of time.

4. Only Refinance when You'll Stay in the Home

Refinancing your home loan does not make sense, unless you plan to stay in the home in question for many years. Otherwise, you'll have to renegotiate the terms of the loan later on, when you plan to move. Therefore, it's important to carefully evaluate your future plans, before you make the decision to refinance your home loan.

5. Avoid Prepayment Fees

Prepayment penalty fees are one of the biggest reasons why people ultimately opt to avoid refinancing. These fees will be charged at the time of a rate change. Read through the fine print of your loan terms, and look for ways to avoid these fees. It's also a good idea to avoid these fees at the time you set up a new loan for your home as well.