Home re-financing always seems like a great idea as often it looks like you will have lower payments, better terms on the loan and even cash out some of the equity in your home na have some cash in your pocket. There are not many people out there that would turn that down. However when considering a home loan re-finance it is important to take the timing and the costs of the new loan into consideration. All loans charge fees and if the trimming is not right you can lose large amounts of money to fees. Also if your credit score has lowered or the interest rates have not dropped enough it can be a costly mistake. This article lists some of the worst times to consider a new loan.

Recouping the Closing Costs

In determining whether or not it is a good time the homeowner should determine how long they would have to retain the property to recoup the closing costs. This is significant especially in the case where the homeowner intends to sell the property in the near future. There are loan calculators readily available which will provide homeowners with the amount of time they will have to retain the property to make it worthwhile. These calculators require the user to enter input such as the balance of the existing mortgage, the existing interest rate and the new interest rate and the calculator return results comparing the monthly payments on the old mortgage and the new mortgage and also supplies information about the amount of time required for the homeowner to recoup the closing costs.

When Credit Scores Drop

Most homeowners believe a drop in interest rates should immediately signal that it is time to re-finance the home. However, when these interest rates are combined with a drop in the credit score for the homeowner, the resulting re-financed mortgage may not be favorable to the homeowner. Therefore homeowners should carefully consider their credit score at the present time in comparison to the credit score at the time of the original mortgage. Depending on the amount interest rates have dropped, the homeowner may still benefit from re-financing even with a lower credit score but it is not likely. Homeowners may take advantage of free quotes to get an approximate understanding of whether or not they will benefit.

Have the Interest Rates Dropped Enough?

Another common mistake homeowners often make is to re-finance whenever there is a significant drop in interest rates. This can be a mistake because the homeowner must first carefully evaluate whether or not the interest rate has dropped enough to result in an overall cost savings for the homeowners. Homeowners often make this mistake because they neglect to consider the associated closing costs. These costs may include application fees, origination fees, appraisal fees and a variety of other closing costs. These costs can add up quite quickly and may eat into the savings generated by the lower interest rate. In some cases the closing costs may even exceed the savings resulting from lower interest rates.

Can It Be Beneficial Even When It Is A "Mistake"?

In reality re-financing is not always the ideal solution, but some homeowners may still opt for taking this route even when it is technically a mistake to do so. This classic example of this type of situation is when a homeowner does this to gain the benefit of lower interest rates even though the homeowner winds up paying more in the long run for this option. This may occur when either the interest rates drop slightly but not enough to result in an overall savings or when a homeowner consolidates a considerable amount of short term debt into a long term mortgage. Although most financial advisors tend to warn against this type of financial approach, homeowners sometimes go against conventional wisdom to make a change which may increase their monthly cash flow by reducing their mortgage payments. In this situation the homeowner is making the best possible decision for his personal needs.

There are many times and factors that go into a re-finance and if the indicators above seem to say it is not a good time then it might be better to back off and wait. These indicators above however are just a guide and some of the common things to look out for. They are not hard and fast rules and they can not account for each persons individual needs. So after taking all of the above factors into consideration if a re-fi still looks like the only way out then go for it.