The right time to refinance, based on your life stage

If you seek to refinance your mortgage loan, there are more opportune periods than others to pull the trigger. Often, the best time is when interest rates have dropped and you can lock in a significantly lower rate, thereby saving thousands in interest. Or, when you need to tap into your home’s equity in the form of a cash-out refinance, that extra money can help pay for a home improvement project, consolidate your debt or fund a significant purchase.

“There are various strategies homeowners can implement to ensure the timing is right for a refinance,” says Jeremy Luke, senior lending manager for Chase Home Lending, based in Houston. “The first step is to determine both your short- and longterm goals to gauge which mortgage product meets your needs. For instance, if your objective is to reduce your monthly payments as much as possible, you will want a refinance loan with the lowest interest rate for the longest term. If you want to pay less interest over the length of the loan, look for the lowest interest rate at the shortest term.”

But there are other scenarios where it can also pay to pursue a refi, experts suggest. One life stage that can warrant a refi is getting married.

“If you owned a home before marriage, you could refinance your loan to add your new spouse to the mortgage and title to share the responsibility of the property,” Luke says. “This is particularly beneficial if the new spouse has good credit and a stable income, as adding their name to the refinance loan may help you get approved at a lower interest rate.”

However, the couple may be better off with a single-holder mortgage if the new spouse doesn’t qualify for the loan, cautions Lyle Solomon, a financial expert and attorney at Oak View Law Group in Rocklin, California.

Another timely event that can trigger a refinance is a divorce. Consider that, even when a divorce is finalized, your lender may view both you and your spouse as responsible for the loan until one party has been removed or the property has been sold.

“To resolve this, you and your spouse can consider refinancing to remove one party from the mortgage and title,” Luke adds.

But to refinance the mortgage following a divorce, “one spouse typically has to buy out the other spouse’s equity. This means that they have to pay the amount the other spouse has invested in the mortgage,” Solomon notes.

Retirement can also be an ideal time for a refinance, especially if you seek to lower your interest rate, reduce your loan term or cash out for home improvements.

“A cash-out refi is a great option for retirees who have a lot of equity built up in their home. The funds can help boost retirement income, increase monthly cash flow or fund living expenses post-retirement,” Luke notes.

Refinancing is often a better option than getting a reverse mortgage, too.

“With higher interest rates, reverse mortgages typically have higher upfront loan closing costs,” Solomon continues.

If you are considering a refi, try to do it before you actually stop working.

“That’s because it can get complicated to refinance after retirement, as mortgage companies want to see income rather than simply assets,” cautions Mark Streich, cofounder of SquareFairy in Burlingame, California.

A refinance can also come in handy if a spouse or partner passes away and you plan to hold onto your property. This can lower your interest rate and, if you pursue a cash-out refi, provide extra funds to afford new expenses that may arise following the death of your loved one.

However, “with a single income, paying a mortgage can become a taxing expense. You might want to consider selling the home and moving somewhere cheaper instead,” Solomon points out.

Additionally, the graduation of your high school student could be another turning point when a refinance can help achieve life goals.

“Some parents will refinance their home to help pay for college rather than burden the child with additional student debt,” Streich continues.

Luke echoes those thoughts.

“It can be a good idea to consider refinancing whenever there is a change in your family or household or if there has been a meaningful change in your family’s income or credit scores,” he says.