Refinancing your home is an important decision that can have many negative consequences if the timing is not right. If you are considering a refinance, it is very important that you take some items into consideration before making a final decision on whether to refinance or not. Refinancing a home loan without taking into consideration whether the timing is right can cost you thousands of dollars in penalty fees and interest payments over the life of the mortgage loan.

1. The Reason For Refinancing The Loan

Refinancing a home loan for certain reasons is always a bad idea and you should avoid falling into these traps at all costs. A home loan should never be refinanced to pay for an expensive vacation or to pay off credit card debt so that you can charge more items to your credit cards. Using the equity in your home in this manner is a phenomenal waste of money and if you cannot pay for these items in any other way, it is a good bet that you should not be going on the vacation or purchasing any more items that are not absolutely necessary.

2. How Interest Rates Are Moving

Right now, mortgage interest rates are steadily rising in all parts of the country and the type of mortgage loan product that you currently have will determine what steps you should take next. If your current mortgage loan is a traditional, fixed rate loan then it may be cheaper for you to stay in your current mortgage to prevent your mortgage payments from increasing due to the higher interest rates. However, if you took out an adjustable rate mortgage loan to pay for your home, it may be best to try and refinance into a fixed rate mortgage to lock in the current interest rate and mortgage payment before the rates rise further.

3. Length Of Time You Will Be In The Home

A home loan should only be refinanced if you are planning on staying in your home for at least five more years. Any length of time shorter than that and you will find yourself paying the mortgage company hefty prepayment penalties for paying off the loan early, often costing thousands of dollars. The prepayment penalties required for getting out of the loan will take away from the amount of money you will have for placing a down payment on a new home, not to mention the fact that you will be giving a great deal of money to the mortgage company for nothing.

By thinking about these items before you decide whether or not to refinance your home loan, you will reduce the risk of refinancing at a bad time and losing thousands of dollars on the deal.