Mortgage refinancing is made even more attractive by combining mortgage rates in recent weeks and the end of the much vilified federal refinancing duty… The average 30-year refinancing rate fell to 3.03 percent this week from 3.11 percent last week, according to a national survey of Bankrate lenders.
Many in the mortgage industry expected that refinancing the boom will fade as the economy recovers from the coronavirus recession. Instead, the spread of the COVID-19 Delta variant has rocked the financial markets.
There is a new opportunity for homeowners to make money on low refinancing rates… “A lot of people who may have thought they missed the boat the first time might be interested now,” says Sebastian Hart, senior manager of capital markets at mortgage company Better.com.
Mortgage refinancing rates change in favor of borrowers for several reasons. For one reason, mortgage regulators said last week that they are lifting the widely criticized refinancing surcharge. This FHA announcement came Friday morning, and by noon Friday, lenders cut refinancing rates…
“As soon as this announcement was made by FHFA, lenders were thrilled with it,” says Robert Human of Credible.com.
Homeowners have also responded by taking advantage of the rate cuts. “Our pipeline jumped 20 percent in a week,” said Gordon Miller, owner of the Miller Lending Group in Cary, North Carolina.
Mortgage rates are falling all over the place
A federal levy of 0.5 percent of the refinancing amount is paid by lenders, not borrowers. In response, lenders last year raised refinancing rates by about 12.5 basis points, or 0.125 percentage points.
Some lenders have cut rates on 15-year fixed-rate loans to less than 2 percent, and on 30-year refinances they have done well below 3 percent. These moves could resume the refinancing boom that was in full swing earlier this year.
Another factor pushing mortgage rates is the resurgence of the coronavirus, which is raising new questions about the future economic recovery. Reflecting these concerns, the 10-year Treasury yield fell to 1.28% as of Wednesday. 10-year Treasuries – a key benchmark for 30-year mortgage rates – stood at 1.5 percent a month ago.
How to refinance your mortgage
Step 1. Set a clear goal
You have a good reason to refinance. This could be a reduction in the monthly payment, a reduction in the term of a loan, or a divestiture to renovate a home or pay off debt at a higher interest rate. You may also want roll your HELOC into refi…
Things to consider: If you lower your interest rate but reset the clock on a 30-year mortgage, you can pay less each month, but more over the life of the loan. This is due to the fact that repayment provides for the accrual of interest at the initial stage in the first years of the mortgage.
Step 2. Check your credit score
You will need to be eligible for refinancing in the same way that you needed to get approval for your original home loan. The higher your credit rating, the more favorable refinancing rates lenders will offer you – and the higher your chances of underwriters approving your loan.
Things to consider: Lenders have become stricter in providing loans during the pandemic, so the typical the credit rating of the mortgage borrower is higher now than ever. Although there are ways refinance a mortgage with a bad credit history, it makes sense to spend a few months improving your credit rating before starting the process.
Step 3. Determine how much equity you have
Your home equity is the value of your home in excess of what you owe your mortgage lender. To find out this figure, check your mortgage statement to see your current balance. Then search for homes online or ask a real estate agent to do an analysis to find the current estimated cost of your home… Your net worth is the difference between the two. For example, if you still owe $ 250,000 for your home and it is worth $ 325,000, your net worth is $ 75,000.
Things to consider: You may be able to refinance a regular loan with just 5 percent equity, but you will get higher rates and fewer commissions (and you won’t have to pay for private mortgage insurance, or PMI) if your equity exceeds 20 percent. The more home equity you have in your home, the less risky the loan is for the lender.
Step 4. Buy from multiple mortgage lenders
Receiving quotes from multiple mortgage lenders can save you thousands. Once you’ve chosen a lender, discuss when is the best time to lock in your rate so you don’t have to worry about raising rates until the loan is closed.
Things to consider: Aside from comparing interest rates, look at the cost of the fees and whether they will be paid upfront or included in your new mortgage. Lenders sometimes offer refinancing without closing costs but charge a higher interest rate or add to the loan for compensation.
Step 5. Get your documents in order
Gather recent payrolls, federal tax returns, bank statements, and whatever else your mortgage lender asks for. Your lender will also keep track of your credit and net worth, so disclose your assets and liabilities ahead of time.
Things to consider: Preparing documentation before starting the refinancing process can make it smoother.
Step 6: Prepare for certification
Mortgage lenders usually require mortgage refinancing assessment to determine the current market value of your home.
Things to consider: You will pay several hundred dollars for the appraisal. Telling the lender about any improvements or repairs you’ve made since you bought your home may result in a higher score.