Tips for Mortgage Refinancing as Rates Rise

Last Updated on May 28, 2017 by Andrew Lee

With mortgage rates continuously on the rise, a lot of homeowners in the United States think that they have no choice but to put off their refinancing plans. Before you consider yourself part of this group, know that at the moment, home loan rates still fall under the “historic lows” range. Also, mortgage analysts, economists, and real estate experts predict that they won’t go beyond 5% this year. Mortgage refinance is still a viable option to save money, as long as you know what you’re getting into.

This doesn’t automatically mean that you should settle for the first offer you get, just because it saves you money. Without a thorough assessment, you can’t guarantee that your decision to refinance is worth the legwork and effort. As a rule of thumb, it should lower your current rate by no less than 1 per cent, or that it can help cover your closing costs. To really benefit from this service, despite the rising mortgage rates, you should implement the following strategies.

The sooner, the better

Although experts don’t foresee mortgage refinance rates shooting through the roof in following months, they will rise in a steady manner. So, if you want to take out a new loan in exchange for your existing one, now is a good time to do it. The sooner you go for refinancing, the more chances you have of enjoying lower current rates. There are some instances wherein it’s better to wait, but if you can afford to do it now, don’t put it off for too long. There’s little to no chance of it going down anyway.

Get yourself in front of the line

If you are 100% sure you want to refinance your existing home loan then prepare as early as possible so that you have everything ready once the rates do drop. Having your application ready not only increases your chances of catching the low rate, but also to avoids complications, especially backups. Remember: you’re not the only one who wants to refinance, so you can expect a long queue once rates start falling. Fail to prepare, and you’ll find yourself at the back of the line, which can mean missing out on the rate dip.

Keep your application updated, even when you’re not ready to submit it yet. As you wait for the refinance mortgage rates to drop, you can work on improving your credit score as well as saving up more cash for refinancing-related fees.

Ensure the accuracy of your credit report

Your credit score plays so many different roles in your life as a consumer, one of which is to determine the price of almost every loan – even insurance products – you purchase. So if you haven’t checked the status of your score yet, do it before you send your application. This way, you can make sure your credit report doesn’t have any errors on it, which can result in a rate higher than what you expect or even greater than what you’re paying for at the moment. Even if there are no mistakes in it, as long as it stays in the less-than-stellar range, you can’t expect lenders to give you a better rate.

A critical component of any sound refinance planning is to either maintain a high credit score or work in making it better. So once rates fall and you are ready to submit your application, you can secure a much better deal.

It’s not impossible to bring your credit up a couple of hundred points, given that you’re motivated and willing to put in the hard work. From a range of 500, you can bolster it to 700 in just several months. This increase can already warrant a much lower rate than what you’d get if your score remained in the 500 bracket.

Know what your options are

Not knowing the refinance options available and more importantly, suitable for your particular situation can result in very expensive consequences. Choose the wrong program and refinancing will do you more bad than good. So, take the time to learn as much as you can about the various options you have before you send in your application.

Here are a few questions that can help you make the right decision:

  • Do you intend to refinance your current fixed-rate mortgage into an adjustable-rate one? Or is it the other way around?
  • What are your goals in exchanging your existing loan with a new one? Is it to secure a lower rate for the same term? Do you want to pay off your mortgage sooner?
  • What do you prioritize: lower monthly payments or getting out of your debt quicker?

You shouldn’t bypass these questions as they can help you determine the right type of refinance to choose for your specific financial needs and capabilities. It’s possible that a shorter loan term will benefit you more than an extension on the length of time you have to pay back what you owe, or vice versa.

Ask for help

Ask for help if there are things about a refinance mortgage program you don’t fully understand. You might have family or friends who’ve already experienced this and it won’t hurt to ask. However, it’s a lot better if you consult professionals, as they know the ins and outs of the refinance world. Besides, you don’t have to pay for general inquiries. Unless you’re willing to work with a broker – who will guide you throughout the process – seeking advice and help for the basics wouldn’t cost you money. And you can also direct these questions towards the lending institutions you’re interested in working with. Remember: they’re competing for your business, so they’ll gladly answer your questions.

The bottom line

Refinancing can serve as a valuable tool in making your housing loan responsibilities easier to meet but only if you prepare for it and proceed with the transaction with utmost care. If you can afford to, go for a mortgage refinance deal as early as you can. However, you should also prepare yourself to wait for several months, especially if you’re working on improving your credit score.