Refinancing is a popular move among homeowners, now that interest rates continue to march up. With available housing still scarce, would it still be possible to snag a home, amidst the overflowing demand and competition?
Before you rush into the hype, take our advice and read these tips first should you decide to push through your plans of refinancing in today’s rising rate climate.
Check and build excellent credit
First things first, if you decide to go through a refi, you better make sure that you’re ready for it, else you are just going to waste your time and money going through the underwriting process and paying for origination fees.
One way to prepare is to make sure your credit score is in shape. A good credit score tells the lender that you are a responsible borrower and thus increases your chances of getting pre-approved on the loan.
Conventional lenders typically want their credit score at 640 and above. Any score less than that is considered a great risk.
Check your credit score online or ask the credit bureaus for a copy of your annual credit report to check your credit score health. Check for inconsistencies and if you do find any, be ready to dispute. Credit errors can seriously damage your report and lessen your chances of getting financing.
If your score is not so stellar, you can start building good credit via good credit practices that can help you raise your score (e.g. paying your credit card bills on time, paying your balances in full, etc.)
Experts predict the trend of rates is still forward. It’s a slow endeavor, but a steady one. It’s very likely that rates will not be as low as they are again now for a long time so if you are planning to get a refi, now is the best time to do it.
Your home appreciated? Make good use of your equity.
If your home value has increased along with those in your area, you can choose another refi option aside from the standard refinance. A cash-out refinancelets you tap into your home equity so you can use the money for more important or emergency expenses.
A Home Equity Line of Credit (HELOC) is also another option you can explore.
How about paying for discount points?
You can trim down your interest rates by paying for discount points. This is an upfront fee that in essence, buys down your rate. A single point payment is equivalent to a single percentage omission from your mortgage amount.
Consider an ARM refi
ARMs or adjustable rate mortgages have lower initial interest rates compared to fixed-rate mortgages. After a determined period, the rate resets and so does your payment. If you are planning to move in a few years or before the rate resets, refinancing into an ARM can be a clever way to get a lower rate.
Would you afford refinancing into shorter term? If so, go for it.
If you are currently carrying a 30-year fixed-rate mortgage, for example, refinancing into another fixed-rate mortgage with a shorter term could be the way to go. Besides from the lower interest rate, it can also help you save thousands of dollars on interest payments throughout the life of the loan.
Or into a fixed-rate mortgage, for stability.
Your current ARM may be in danger of treading into an even higher rate range in the future. If you want to bank on stability and get away from the anxiety of rising rates, refinance into a fixed-rate mortgage.
One of the most common reasons to refinance is to lower mortgage payments by lowering mortgage rates. That might not make a lot of sense today when rates are rising.
But the rates are not in full bloom. Experts say today’s rates remain in record low range, although the predicted rise is inevitable.
If you remain doubtful about whether to refinance or not, speak with a professional to be guided in making this important financial decision.