What's the Best Time of Year to Refinance your Home?

As of May 21, Bankrate reported a mortgage interest rate of 4.29% for a 30-year fixed loan. Mortgage interest rates are higher than they were at the end of 2012 and through 2013, but at least they're nowhere near the record 18.63% they were in October 1981!

The old rule of thumb about refinancing was you should consider it if you can get an interest rate at least 1% lower than what you're paying. But there are other considerations too, like refinancing costs and how long you plan to stay in your home. If you're not sure, online calculators like Zillow's can determine your "break even" point for refinancing.

Though you might think that any time you can lower your monthly payment you should refinance, that's not necessarily true. Refinancing costs money, and you need to evaluate all pertinent factors before making your decision. It's also wise to know when not to refinance.

When Not to Refinance

There are 3 general situations when refinancing is not a good idea, according to ABC News:

  • When you've had your mortgage for a long time - because you'll revert to paying interest again rather than building equity as you're doing now
  • When your current mortgage carries a pre-payment penalty - which increases the time it takes to break even once you refinance.
  • When you plan to move within a year or two - because your monthly savings may not be enough to offset the up-front costs of refinancing.

Next step: Sign up for Mint and receive automatic mortgage interest rate alerts.

Before Refinancing

Mortgage rates are expected to creep upward in 2014, but that doesn't mean you should drop everything and refinance immediately. Ask yourself the following questions before committing to refinancing.

  • What are your goals? - Do you want to lower monthly costs, savings over the term of the mortgage, or equity cash? If lowering monthly costs is your goal and you plan to be in your home for 5 years or more, then refinancing may be a smart move.
  • How much lower is the new rate? Use a "break-even" calculator to determine if it's low enough to be worthwhile.
  • How's your credit history? You won't get those great advertised rates unless you meet lender credit requirements, which generally means a high credit score.
  • How much is your home worth? Many homes have lost value in recent years. If your home is worth less than what you owe, refinancing is probably not a good idea.
  • Will you have to get private mortgage insurance? If you're refinancing 80% or more of your home's value, you will probably have to get private mortgage insurance (PMI). If you don't currently have PMI but will have to get it, it can offset the savings from refinancing.

Best Time of the Year to Refinance

If you plan to refinance, choosing the right time of year can make a difference. According to Financial Samurai, people in financial services often rely on year-end bonuses, and the closer it is to year's end, the more loan officers want to close loans. The trick is, however, that you have to know when a lending institution's fiscal year ends, because it may not correspond to the calendar year. Seeking refinancing during a lending institution's last fiscal quarter of the year can help you benefit from loan officers who want to shine when being evaluated for bonuses.

Best Time of the Month to Refinance

Just like car dealers want their monthly numbers to look good and are hungrier to close deals toward month's end, mortgage loan officers want to reach their monthly targets. Again, according to Financial Samurai, loan officers often save up their energy for the last half of the month. By refinancing during the last half of the month, you may be able to secure better terms due to your loan officer's desire to meet monthly targets.

Interest rates are rising from the record lows of late 2012, so now may be a good time to consider refinancing. Look for a significantly lower interest rate, and you'll be better off if you plan to stay in your home several more years. If you can change from an adjustable rate loan to a fixed loan, you'll avoid future rising rates and can often get a better rate than you would with an adjustable loan, particularly if you have good credit.

One terrific way to monitor mortgage rates is with a finance app like MintMint offers automatic rate notifications to keep you up-to-date on interest rate trends, whether you're at home or mobile, because Mint syncs to your smartphone as well as your computer. It's one of the easiest ways to ensure you refinance at the best time.

Next step: Sign up for Mint and receive automatic mortgage interest rate alerts.