Be Alert for Mortgage Refinance Opportunities

By Richard Barrington
NFNS Columnist

There are many reasons to refinance a mortgage, but the most popular is when it is possible to obtain a significantly lower interest rate by doing so. You shouldn't refinance every time mortgage rates tick down a little--you'd spend a fortune on closing costs by doing so--but you should be alert for significant changes in interest rates.

Odds Are You'll Get a Chance to Refinance Your Mortgage

Looking at more than 35 years worth of monthly mortgage data, we can track changes in mortgage rates from month to month. We can therefore tell whether and when a mortgage originated in those months could subsequently have been refinanced for a better deal.

Using half a percent as an example of a drop in mortgage rates significant enough to cover closing costs, we find that 89.3% of the time, 30-year mortgages would have had at least one opportunity to be refinanced at a significant savings.

In other words, history says that there is a very good chance that you will have an opportunity to save money by refinancing at some point over the course of your mortgage.

How to Prepare

The catch is that these refinancing opportunities can be fleeting--mortgage rates bounce around from month to month. Therefore there are some things you should do now so you will be ready to act when the opportunity presents itself:

  • Use a mortgage calculator to determine your target rate--a rate low enough so that the savings more than covers closing costs.
  • Have an understanding of the application process, so you will have all the necessary information handy.
  • Monitor mortgage rates regularly--at least once a month.

History shows that some mortgage holders have had to wait many years for an opportunity to refinance, while others have gotten a chance after only a of couple months. In other words, there is no telling when the chance will come, which is why advance preparation is so important.

Freddie Mac

About the Author:
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

How to Refinance

Mortgage Calculators