The pandemic has turned the economy upside down. On a positive note, mortgage rates have reached historically low levels – and with these lower rates, it is now the perfect it’s time to refinance your mortgage.
This is good news if you think about buy a new house or refinance your mortgage. Over the past two weeks, however, mortgage rates have essentially leveled off, and there’s no sure way of knowing whether they’ll hold steady, fall again, or rise.
If you’re looking to get the most out of a mortgage refinance, the first thing to do is use a multi-lender shopping site like Credible, which can compare mortgage rates and lenders to ensure you get lower rates and save money on your monthly payments and on the duration of the loan.
Once you’ve navigated Credible.com, consider following these steps.
Mortgage refinancing: 5 ways to set yourself up for success
Although mortgage refinance rates are low, it does not mean that you will qualify for the lowest rate set by your mortgage lender. In order to get the most out of a refinance and achieve your financial goals, you might want to follow these five steps:
- Improve your credit score
- Compare rates and shop around for mortgage lenders
- Switch to a new loan term
- Consider a fixed interest rate
- Buy Mortgage Points
1. Improve your credit score
It’s amazing the value of a great credit rating. This is the first thing most mortgage lenders look at to qualify you for a mortgage refinance and set a rate. So if you boast a high credit score, you’re more likely to get lower rates on your refinance.
Have more than one credit card can actually improve your credit score (as long as you pay your bills on time and actively shop with your cards).
With Credible, you can also browse different types of credit cards, from cashback to rewards cards. If your credit is in good shape, you may want consider opening another account.
2. Compare rates and shop around for mortgage lenders
A good way to ensure you get the best possible rate for your mortgage refinance is to shop around. Keep in mind that each time you apply, whether online or in person, your credit score will drop slightly. But it’s only temporary. If you work with lenders who respect the FICO scoring model, you have 45 days to make your purchases. During this time, each credit check will only appear as one inquiry on your credit file.
If you’re considering buying or refinancing, now is the time to act before rates rise. Explore your mortgage refinance options by visiting Credible to compare mortgage rates and lenders in one place.
3. Switch to a new loan term
When you refinance a 30 year mortgage into a 20 or 15 year mortgage, you’ll pay off your loan much faster and save a lot in interest. If you refinance your 20 or 15 year mortgage to a 30 year mortgage, your monthly payment will be lower, but you will pay more interest over the life of the loan.
You can decide to refinance your 30-year loan into a new 30-year loan. Your payments will likely be lower, but you’ll end up spending more on total interest because you’re combining the terms of your original loan and your refinanced loan.
If you’ve decided that refinancing your home loan is right for you, visit Credible to find custom rates and mortgage lenders in one place.
4. Consider a fixed interest rate
Refinancing your mortgage can be a good idea if you want to trade in your Variable Rate Mortgage (ARM) for a fixed rate mortgage. This is especially true if you think interest rates are going to rise anytime soon. What makes this decision so difficult is that you will pay closing costs and other costs at closing. Also, you have no way of knowing the future interest rate on your ARM. That said, if history is any predictor, interest rates won’t stay this low forever.
5. Buy Mortgage Points
Since interest rates are so low, buy mortgage points lowering your rate can actually be counterproductive. That’s because you’ll pay interest on the points you put into your loan (unless you prepay the cost at closing).
Each point you buy costs 1% of the total mortgage amount. So a point on a $450,000 mortgage would cost $4,500. Since one point generally reduces the interest rate by 0.25%, an interest rate of 3.50% would become 3.25% for the term of your loan.
Want to take advantage of such low interest rates while they’re still available? It’s probably a good idea. But there are other considerations to take into account:
- Will you qualify for a lower rate?
- Can you afford the closing costs?
- Will you get a lower interest rate than your current rate?
- Will your savings over time justify the upfront costs?
- How long do you plan to stay at home?
If you’re not sure if now is the best time to refinance your mortgage or buy a new home, visit Credible to connect with experienced loan officers and get your mortgage questions answered.
Today’s Mortgage and Refinance Rates
Right now, the weekly average for a 30-year fixed-rate mortgage is 2.75%, while 15-year mortgage rates are holding steady at 2.12%, according to Freddie Mac. That’s quite a difference from a year ago when the 30-year mortgage rate was 3.69% and the 15-year mortgage rate was 3.15%.
When you consider the numbers, you might not think that a percentage point would make a big difference in your monthly payment, but it does.
For example, if you have a $400,000 house with a 30-year mortgage at an interest rate of 2.87%, your monthly payment will be $1,658.00. Your monthly payment at an interest rate of 3.69% will be $1,838.87. That’s a difference of about $200 per month.
See what your estimated monthly payment will be using our mortgage refinance calculator.