Whats the rule of thumb for when to refinance a home mortgage

Is there a general rule of thumb for when to refinance a mortgage? In a word, yes. The best time to refi is when rates on 30-year fixed loans are super low and have been low for a while, but before they start inching up again.

In other words, the time to refinance is now.

Rates on 30-year fixed loans have been around 5 percent, more or less, for conforming loans. Jumbo loans have hovered around 5.5 and 6 percent for a while, too.

Example: Bankrate.com’s April 28th national survey of lenders found that the average 30-year fixed loan was 5.21 percent. That’s slightly down from the previous week. One year earlier, the 30-year-fixed average was slightly higher, at 5.23 percent.

When you consider 30-year fixed mortgage rates went as high as 18.45 percent in October 1981, you can see why now’s a great time to refi.

If you decide to refi, here are some tips to keep in mind.

1. Be clear about your goals

Is your goal to lower your monthly mortgage payments? Do you want to shorten your mortgage term? Do you hope to sell your home in a few years? Do you need to consolidate debt (such as combining your existing mortgage with your home equity line of credit balance)?

The answers to these questions can determine what you should look for in a refi.

2. Start shopping now

Just because rates have been low for a while doesn’t mean you can get complacent. Signs are pointing toward mortgage rates rising this year.

Mortgage rates “are poised to soar higher,” says loan officer and blogger Dan Green of The Mortgage Reports, as quoted on Bankrate.com.

Bankrate.com offers free automatic mortgage rate alerts. Tell the site the rate you want for a mortgage, and you’ll receive an e-mail when rates are within the range you specify.

Bankrate.com also offers a weekly Mortgage Rate Trend Index. The index provides an indication of what experts think will happen to mortgage rates in the near future.

ERate and Bankrate.com both offer guides to current mortgage rates by state. ERate also has a free iPhone app for finding mortgage rates (see image).

3. Go for a 30-year fixed mortgage

This is a great time to lock in a low rate on a 30-year fixed loan—or even better, a 15-year fixed loan, if you can swing it. Adjustable rate mortgages are OK for the short-term, but they’re not a viable long-term mortgage strategy.

4. Do the math

Refinancing isn’t without costs. Online mortgage calculators, such as those at Bankrate.com and The Mortgage Professor’s Web site, can help you crunch the numbers.

Rule of thumb: Determine how long it will take you to recoup the refi costs. That’s especially important if you’re planning to sell your home in a few years.

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