Mortgage rates may be rising but there’s still room to refinance your home loan. You might have heard much said about the constant rise of interest rates over the past year, with some blaming that for a recent dip in home sales. Yet mortgage rates remain near record lows, presenting an opportunity for homeowners to save on their monthly mortgage payment if they buy now.
As it stands, the average rate on a thirty-year fixed rate mortgage is 4.07%. Some expect it to move higher, potentially reaching 5% next year. It means that the clock is ticking for homeowners thinking about refinancing. However, it doesn’t mean they should rush through the process, making costly mistakes along the way. There are a few different methods and tricks of the trade that can help you refinance your mortgage for greater savings.
From knowing your credit score to comparison shopping, we’ve found six ways to ensure you get the best deal on your first mortgage refinance.
6 Strategies for Your First Mortgage Refinance
1. Be Nimble but Thorough
It’s true that mortgage rates are still at record lows, but that’s not expected to last for too much longer. Between the Federal Reserve’s rate-raising mood and more hikes expected next year, the cost of borrowing money to purchase a home will probably increase. As mortgage rates rise, existing homeowners will have less opportunity to refinance into a lower interest rate mortgage. As a result, homeowners need to act soon if they’re considering refinancing their current loan.
Even if you don’t plan to use the money until next year, it would be smart for you to do it now before rates increase any further. You don’t want to miss the boat on paying the least amount possible on your mortgage, nor do you want to get shut out of the refinancing process altogether.
Acting quickly doesn’t mean doing it blindly. Make sure to do your homework and compare rates between different lenders to ensure that you’re getting the best rate at the least possible cost. A refinance comes with the same costs that a mortgage does — that includes the loan origination fee, an appraisal report, the title search, the title insurance, and the recording fee.
2. Check Your Credit Score Before You Start the Process
The point of refinancing is to get a lower interest rate and thus pay less over the life of the loan. However, if your credit score suffered since you purchased your first home, you may not save anything. Lenders determine the interest rate you pay based on your credit score. If it’s above 760, your rate will be among the lowest available. If it has dipped below that, expect to pay more. That may make any savings from a lower interest rate a wash.
Before starting the process, get copies of your credit report from the three credit reporting agencies — Experian, Equifax, and TransUnion — to ensure there aren’t any issues in it that might make the cost of borrowing higher. Your credit score can improve quickly by paying your bills on time and by staying on top of your credit card balance. Join MoneyTips to see your three credit reports today as part of a free trial.
3. Comparison Shop to Save
Homeowners scour the Internet and view multiple properties before settling on one to purchase. They also shop around for their mortgage. That same discipline should be applied to refinancing an existing mortgage. Sure, it’s easy to stick with your existing mortgage lender but, if they aren’t giving you the best deal, you need to move on.
The average interest rate will be similar from one lender to the next, but there are also those closing costs associated with a mortgage refinance that can vary. As a result, homeowners have to comparison shop, looking at everything from the interest rate to the loan fees. Customer service matters too. You want to go with a lender that will provide the best interest rate and top-notch customer service to protect you in case any issues arise. If the refinance process takes longer than anticipated, and rates move higher before it closes, it could preclude you from getting a better loan.
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