Refinancing is done by people not only to avoid foreclosures but also to gain advantage of lower interest rates. People can smartly use refinancing to make substantial savings but if it not taken wisely at the appropriate time it may end as a debacle. The refinancing mortgage should be able to improve the overall mortgage situation of a person and if the person estimates that it won’t lower his rate of borrowing, refinancing should not be done.

A thumb rule states that refinancing should not be considered till the rate of mortgage falls more than 2% of the borrower’s original loan rate. There are some other important factors apart from the thumb rule that assists in identifying the best time for refinance.Here are some situations which are advantageous for borrowers to refinance their loans and can be taken as best times for refinancing –

• Change in Interest Rates – Lowering of interest rate is the most lucrative time when people start considering refinancing as an option. It is because lower the interest rate, lower is the amount a person has to pay as interest over the tenure of loan. When interest rates start lowering, people need to analyze if the rates are going to fall further. If there is an indication of further drop, people should wait to let rates settle down. But, if there is an indication of a hike in rates again, refinancing should be considered immediately.

• Change in Personal Situations

 Repayment of more than one loan – When a person is repaying more than one loan, he may face problems handling the various repayments simultaneously. In such cases a person can go in for mortgage refinancing for his home loan to take some burden off his shoulder.

 Improvement of credit scores – If the credit score of a person has improved over earlier times, it increases his chances of striking a refinance deal with a low interest rate. It is seen that people with good credit scores are able to get mortgage at favorable rate than those with bad credit history.

 Improvement in debt to income ratio – An increase in the debt to income ratio may be due to the rise in a person’s income or reduction of debts. Reduction of debts means a person has completely repaid some other mortgage which has resulted in an increase in the person’s monthly savings. In such cases, a person can qualify for refinancing the home mortgage.

 Inability to repay existing mortgage – In case of an inability to pay the existing mortgage installments, a person should not wait for monitoring the interest rates for best time for refinance. He should immediately apply for refinance to avoid foreclosure of his house. Apart from avoiding foreclosure, he will also be able to make some cash savings that will help him face the crucial times.

 Changing the existing terms and increasing savings – When a person wants to increase his cash savings or increase/decrease the duration of his home loan, he can go for refinancing. Also if the person is not satisfied with his existing loan terms, he can opt for a change. But the person must not forget to account the various fees associated with early repayment of loans and refinancing mortgage.

The best time for refinancing varies with the financial conditions of market, as well as the financial condition of the person who wants to apply for refinance. People should take the advice of brokers and lenders to ascertain the visible and hidden costs with the refinancing decision.