The market is hot for mortgage refinances—again. This time though, the window could close fast.
A few weeks ago, you probably heard interest rates were on the rise. Many homeowners who were on the fence about refinancing may have decided to stay with the loan they were in. Right now, however, economic circumstances have taken rates back down, opening up a small window of opportunity. So, if you were one of those fence sitters, the time to jump in is now. There’s no telling how long interest rates will continue to be this low in the coming months or even weeks. Here are five tips to help ensure that you don’t miss out this time around.
1: Historic low rates—that’s your motivation.
The average rate over the last year hovered around 4 percent, which is a good rate. Now the rates are even better, but with the likelihood of only going higher, not lower.
So, whatever your goals are for refinancing (e.g., lower payments, a shorter loan term, withdrawal for a major life change), indecision is not your friend in times like these. Get an accurate picture of the value of your home and your credit health to determine your next move. Your credit score will be key in figuring where your rate will land. Use a mortgage calculator for the most accurate estimate.
Visit AnnualCreditReport.com, where you can view your free report from each of the three credit bureaus annually. For a small fee, you can also find out your numerical credit score. To get a general idea of your home’s worth, check a site such as Zillow.com or talk to a realtor.
2: Be smart about where and when you cast your rate net.
Think of refinance rates as fish in tidal waters. You’ll have to compare the catch daily, as you may yield plenty of fish on Monday, and then not so much on Tuesday. Definitely put your feelers out there for the best deal and watch for rate fluctuations. Be sure to check rates online regularly with a rate tracker. Some can even email you when rates change.
Also remember that you’re not just looking out for the best rate; you need to compare the fees lenders charge for making the loan. “Good fishing” is done in waters that have low fees, no application fee, no mortgage insurance, and rate matches. Be sure to compare fees on title searches, loan originations, and appraisals, too, as they can vary from lender to lender.
3: Lock it in.
Now that you’ve got a sharp eye on the rates and lenders, it’s time reel the deal in. And, once you’ve gotten your desired rate, lock it. On average, a lock is for 30 or 60 days, but you can even lock at the time of application.
4: Know your options.
In the current lending environment, it can be tough for some to refinance an existing mortgage if your home is underwater and you owe more on the property than it’s worth.
Many financial institutions require an 80% loan-to-value (LTV) ratio before you could qualify for a refinance. However, government programs such as the Home Affordability Refinance Program (HARP) have targeted underwater borrowers, giving them the chance to refinance no matter how upside down they are. Navy Federal borrowers* can even roll closing costs into the loan up to $5,000 or 4% (whichever is less) of the closing costs.
5: Keep your house clean…figuratively.
In addition to the credit check up front, you’ll be subject to a credit check before closing. This is not the time to apply for any new credit, rack up balances, or make late payments. Credit fluctuations could be cause for delay or even a last minute rejection.
*Navy Federal members are eligible for HARP if the first mortgage loan on the home is with Navy Federal