3 mortgage refinance payments not paid at all

The interest rate you pay when you first sign for a mortgage may not be the interest rate you pay throughout your life, even with a fixed loan. That’s because you may decide to refinance your mortgage at some point.

When you refinance, you exchange your existing mortgage for a new mortgage with different terms. This is different from a mortgage modification, which changes the terms of an existing mortgage.

There are many situations where it makes sense to refinance your mortgage. However, in these three scenarios there is generally no payment.

1. When interest rates are high

Often the goal of refinancing is to lower your monthly mortgage payment. Therefore, it makes little sense to refinance in a time like today when mortgage rates are rising.

As of this writing, the average 30-year mortgage rate is 6.82% according to Freddie Mac. So if you have a 5% mortgage, exchanging it for a loan with a higher interest rate won’t help you. Unless I’m looking to get cash out of my home through a cash-out refinance. In that case, refinancing could do That makes sense. However, unless you need the money urgently, it may be a good idea to wait until the rates go down.

2. If your credit rating falls

Your mortgage interest rate may be higher than the interest rates currently available. For example, if you signed a mortgage with an interest rate of 7.80%, it may be advantageous to refinance to 6.82%.

But if your credit score has taken a hit recently, this might be a move you might want to reconsider. The higher your credit score, the more favorable interest rates you can get for refinancing.

But let’s say your score drops from a very good 780 to 640 because you’re late on some bills. If your credit score is 640, you might not qualify for a 6.82% interest rate, depending on interest rates in your area and the lender’s requirements. And if you’re stuck with a 7.65% interest rate, you may not be able to pay the minimum savings on your refinance.

3. If you do not plan to stay at home for a long time

Maybe, based on your current interest rates and fantastic credit score, you could lower your monthly mortgage payment by refinancing today. However, if you plan on moving in the short term, you may want to think again about refinancing.

When you refinance, you’ll often pay closing costs that can range from 2% to 6% of the loan amount. So it’s important to look at the numbers and see if you can stay in the home long enough to recoup your fees and enjoy all the benefits.

Let’s say you took out a new home loan for $4,000, but it would save you $200 a month on your mortgage payment. In this case, the break-even point is 20 months. However, if you think you’ll be moving within a year and a half, refinancing probably won’t cost you anything.

Refinancing is an option that homeowners with mortgages can and should put off. But it’s important to know when it makes sense to refinance and when it makes sense to wait. If you’re having trouble covering your mortgage but it’s not a good time to refinance, talk to your lender about loan modification. This will lower your monthly payments so you can stay in your home.

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