There are several reasons you might consider refinancing your mortgage loan, but one of the most common? That’d be to lower your interest rate.
As you probably know, interest rates fluctuate constantly. One week they’re up, and the next they’re down. Throw in the impact your credit score has on your rate, and they’re even more volatile than you’d think.
This volatility can offer serious advantage when it comes to refinancing. Not only can it mean a lower interest rate (and sometimes significantly lower), but it can also mean a more affordable monthly payment, more household cash flow, or even paying off your loan months or sometimes years sooner.
Are you thinking of refinancing your mortgage loan? Want to make sure you time it right and get the lowest rate possible? Here’s how to do it.
Timing Your Rate Refi: Consider the Market
There are two things to think about when timing your refinance: the market and your personal, financial scenario.
Marketwise, you want to refinance when mortgage rates are low — at least 0.25 or 0.5 percent under your current loan’s interest rate. (You can look to Freddie Mac for an idea of current going rates week by week).
You’ll also want to consider rate trends. Have rates been rising or falling? Check out Freddie’s monthly tally of rates for an idea, or check out rate forecasts from Freddie, Fannie Mae or the Mortgage Bankers Association. These are all good ways to gauge where rates are headed in the near-term.
Personal Finances and their Role in Your Refi
On the personal side, there are a few factors you’ll want to consider when timing your refinance. First, you have your credit.
As you likely found out when first applying for your loan, your credit plays a big role in the interest rate you’re able to secure. The higher your credit score and the more consistent your repayment history, the better rates you’ll qualify for.
Well, this rings true when refinancing, too. If your credit is strong, you’ll get a good rate; if it’s not, well you might not see much benefit from refinancing (unless market rates have gone really low). Your best bet is to pull your credit report (you get a free one annually at AnnualCreditReport.com) and see what you’re working with. If there are a lot of late payments, a sparse credit history or collections open, you might want to spend a few months repairing your credit profile before you refinance.
In addition to your credit, you’ll also need to think about your current financial situation. Just like with your first mortgage, there will be various closing costs and fees associated with your refinance. You’ll want to make sure you have the savings or cash flow to cover this before moving forward. Generally, these costs clock in at around 2 to 4% of the loan amount.
There are a few expectations to this, though. In some cases, a mortgage lender might offer:
- A no-cost refinance – This means the lender pays your closing costs. They usually compensate for these extra fees by giving you a higher interest rate.
- A rolled-in refinance – This option allows you to roll the closing costs into your total loan balance. It means a higher monthly payment, but less in up-front costs.
Not all these options are available through every lender, so make sure you talk to your loan officer about what you can expect for closing costs on your specific refinance. Remember: you don’t have to use your original mortgage lender when refinancing your loan. You can (and should) shop around. Rates and customer service vary greatly.
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Are you interested in refinancing your mortgage loan to get a better interest rate? Reach out to a Sunray Mortgage loan expert today to discuss your options.