A lot of people today are taking advantage of low mortgage rates to become full-fledged homeowners. According to Scott Sheldon, a California-based senior loan officer, and consumer advocate, rates will most likely be up by just 4% by year’s end.
If you already have a home, now would also be a good time to consider refinancing. “The borrowers that would stand to benefit from a refi are those who bought a house last year, number one, because they probably scooped up something at 4% or 4.25% on a fixed-rate loan last year, and that same product, or maybe a shorter-term loan, whether it’s a 20-year, 15-year or a 30-year is probably half a percent lower right out of the gate,” Sheldon explains.
So should you go ahead and refinance that mortgage?
Everyone’s economic situation is different. The decision to refinance should only be considered when there’s a realistic need to do so. Below are some scenarios wherein refinancing an existing mortgage is a good move.
Reduce monthly payments
If you’ve paid off a huge chunk of your existing mortgage, having it refinanced could significantly bring down your monthly payments.
Free up a portion of income for savings or other expenses
By taking advantage of lower interest rates through mortgage refinancing, you could divert some of the money you have for use in other expenses.
Pay a loan quicker
Maybe you’ve been promoted over the past year and received a significant salary increase. This could lead to a desire to pay your mortgage quicker. That existing mortgage can be replaced with a refinance loan that has a shorter term.
If your own goals match any of the refinancing reasons above, the next logical step would be to prepare yourself for the application process. Here are a few tips.
Check your credit
Before approaching a lender to discuss your refinance needs, examine your credit status. Obtain a free credit report summary from a government recognized credit reporting agency. This will give you an idea of where you stand and what you need to improve to get better interest rates.
Reviewing your credit report also allows you to dispute for errors. Inaccurate information could hurt your chances of being offered a good deal on a refinance loan.
A bank or private lender may require you to present supporting documents. See to it that you have the necessary paperwork in order. This should include your W2s, tax returns, a month’s pay stubs, and bank statements good for 60 days. Keep digital copies of these documents in a secure yet readily accessible location.
Prepare the home
Regardless of the loan type, you can expect to be called out on safety issues. Inspect your home prior to visiting a lender. Identify hazard areas and make sure that these are eliminated.
By knowing why you want to refinance an existing mortgage and making the necessary preparations, you can stand to get the best possible terms. At a time when rates are at record lows, this becomes an even more tantalizing possibility.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.