As the economy recovers from the shocks caused by COVID-19, mortgage rates are expected to rise.
This has not happened yet. Over the past several months, rates have risen from a record low in early January to a 10-month high in early April, and then dropped again.
According to a popular survey, the average 30-year fixed rate mortgage is currently less than 3%. possibility of economical refinancing for millions of homeowners.
Rates vary greatly from lender to lender, but these four tips will help you make sure you are getting the best deal when refinancing into your new 30 year mortgage.
1. Collect mortgage offers and compare rates
Refinancing into another 30 year loan may be the right choice if your current mortgage is relatively young. You will not stretch your interest if you have lived at home for only a year or two.
Rates on 30-year fixed-rate mortgages currently average 2.95%, according to a lengthy weekly survey by mortgage giant Freddie Mac. A year ago, the average rate was 3.15%.
You could be a great refinancing candidate if you have a mortgage that you took out in 2019 when average rates were up to 4.5%.
To find a refinancing loan at 3%, you need to search and compare the rates of several lenders. Freddie Mac’s research found that if you get five quotesyou will pay an average lifetime cost of $ 3,000 less than if you are viewing only one loan offer.
According to a recent study by mortgage technology and data provider Black Knight, about 14.1 million Americans still have the ability to refinance and cut their interest rates by at least three-quarters of a point (0.75). That’s enough to save you an average of $ 287 per month, according to Black Knight.
2. Improve your credit score.
The higher the credit rating, the higher the mortgage rate. Lenders like borrowers with very good credit ratings (ranging from 740 to 799), if not exceptional (800 to 850).
In order to get a refinancing loan that will save you hundreds of dollars a month, you will need at least 720 points, according to Black Knight.
Don’t know your credit score? Easy enough take a look at it for free…
If you find that your credit score needs help, take steps to improve it:
Pay off other debt, especially on credit cards. BUT debt consolidation loan can help you get rid of credit card debt faster and with much lower interest.
Don’t open new credit cards, but don’t close old ones either. If you cancel your cards, you will reduce the available credit – and this could damage your account.
Get your credit reports and make sure there are no mistakes that lower your credit score. An analysis The US Public Interest Research Group found that complaints to the government about errors in credit reports skyrocketed to a record high during the pandemic.
3. Show the lender that you have invested in your home.
Refinancing homeowners who have substantial capital in their homes tend to get the lowest refinancing rates. Equity is the percentage of the value of your home that you own from payments you have already made.
For a lender, the ideal refinancing candidate has at least 20% equity, according to Black Knight. If you still have ways to hit the 20% level, you’ll want to make a down payment on your mortgage that will push you over the edge.
As an added bonus, when you have at least 20% of your home equity in your home, you don’t have to buy or keep paying for private mortgage insurance.
PMI offers lender protection in the event of a borrower’s default. Not to be confused with homeowners insurance that offers you protection if your home is damaged by fires, tornadoes and most other types of natural disasters.
You should already have home insurance – it’s vital and most lenders require it. But every time your homeowners policy requires an extension, go online and collect a bunch of competing quotes so you can be sure you are not overpaying for coverage.
4. Be prepared to pay “points”
Additional fees, known as “discount points,” are a type of down payment that can help you get a low 30-year mortgage rate. One point is equal to 1% of the loan amount and can reduce the rate by a whole quarter of 1 percentage point, say, from 3.2% to 2.95%.
Truly amazing mortgage rates are often – though not always – accompanied by points.
It will take you time to pay off in points and other closing costs before you actually start enjoying the savings from the low mortgage rates. In other words, a refi might not be the right move if you probably want to move relatively soon.
Lenders have their own individual pricing structures, so don’t make the assumption that a point loan will always have the lowest rate. You may find that another lender is offering a loan with a zero score and a higher rate.
This is another good reason look for several loan offers and look at them side by side – to make sure you get the best mortgage rate you can.