(Photo : Photo by Jonathan Borba )

When you refinance your home, you can get a better interest rate, as well as lower your overall monthly payments by rolling the lower mortgage amount into a longer loan term. For example, if you had a thirty-year mortgage, but you have lived there for 12 years, you can refinance at a new thirty-year mortgage with the original lower loan amount. While this extends the loan on the house, you will have lower monthly payments, which can make a significant difference.

Homeowners often wonder when the best time to refinance a home loan is for their particular situation. The short answer to that question is when there is a significant change that may impact your financial situation in a positive way. A significant change may be an increase in their home value, overall better interest rates, or changes in their credit.

If the value of your home significant increases, for any reason, you should consider refinancing. There are many reasons this may happen, including a boost throughout the neighborhood, the result of home improvement projects or even positive changes in the local area and school district that would make a living there more desirable. With the increased value of your home, you can get money out of your home to finish home repairs or consolidate other debt that has been dragging you down. 

You should consider refinancing when interest rates reach a new low. Homeowners can often get a better interest rate on a refinance loan than they did on their mortgage loan. While you cannot do anything to control national interest rates, you can pay attention to what the average rates are and where they seem to be heading to determine the best time to apply for a loan. This can reduce the overall amount of money they will own the house so that it will be less expensive in the long run.

Another time you should consider refinancing is if your credit is significantly better than when you purchased the home. Many factors impact your credit score, including your debt ratio, late payments, hard inquiries, and length of credit. As you improve your overall credit score, you will be eligible for better interest rates on loans. 

If you are looking to increase your credit score, you should consider making sure all of your bills are consistently paid on time. Reduce your debt as much as you possibly can and consolidate debt if you can in a responsible way. When consolidating debt, it is vital to make sure you do not run up your credit cards again, doubling your overall debt.

If you are interested in refinancing, but you aren't sure if it is a good time, you can always look into the refinance loan and see what your options are with lenders currently. You may find it's best for you to wait another year or two, or you may discover that you can get a much better loan now than you had before. 

A refinancing loan expert can always sit down with you and go over all the numbers. They can provide you with an idea of what you will be eligible for based on the information available. If you decide you are interested in trying, they can work with you to get all the paperwork done and the needed documentation collected.

An important thing to consider is why you want to refinance your loan. Most people look into so they can lower their monthly payments, consolidate their debt, or get the money they need for home improvement projects. When applying for the loan, keep your goal as your central focus. When being approved for more money, you may be tempted to go in a different direction.