Mortgage rates are rising. Read this before refinancing.

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Mortgage rates are rising after an almost year all-time low, which is a push for homeowners looking to refinance but haven’t gotten to it yet.

Does it make sense to call your lender and apply? It’s time to figure it out. Here are some questions to watch out for:

Which tariff is right for me?

First, find the difference between your current mortgage rate and the potential savings from a refinancing offer. The refi rate will vary depending on the specific homeowner. When evaluating applications, lenders take into account credit history, income and equity.

The average rate on a 30-year mortgage for the week of March 11 rose to 3.05%. according to Freddie Mac… While this is above historic lows hit last summer, homeowners with rates above 4% can still benefit from refinancing.

Consider how many months it will take you to recoup the cost of closing the refi and how long you will be staying in the house. If you can recoup the closing costs within two years and plan to stay in your home for a longer period, saving on interest means the math will likely work in your favor.

What if closing costs are too high?

If the potential savings from a new mortgage don’t pay off the final costs like title insurance, government taxes, appraisal fees, and more, it may not make sense to refinance just yet.

According to ClosingCorp, a residential property data firm, the national average for associated refinancing fees is about $ 3,400, including taxes. That number hasn’t changed significantly as a result of the pandemic, said Bob Jennings, CEO of ClosingCorp.

In some cases, lenders are reluctant to assess – and the associated costs – for fear of social distancing. Ask your lender about the research process to make sure it doesn’t underestimate the true value of the home.

I have an adjustable rate mortgage. Isn’t it time to switch to a fixed rate?

Those with adjustable rate mortgages may want to refinance their fixed rate mortgages so they can lock in those ultra-low rates.

When thinking about moving from ARM to FRM, first check where the loan is in terms of its adjustment cycle and think about how often your rate changes. Most only do it every six or 12 months, which gives some homeowners more flexibility when it comes to exploring refinancing options and saving on potential closure costs.

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“A lot of borrowers don’t want uncertainty,” said Malcolm Hollensteiner, head of mortgage finance at Sandy Spring Bank in Olney, Maryland.

Since rates have remained so low and are not expected to skyrocket overnight, some homeowners may decide to forgo the associated refinancing costs.

I have a fixed rate mortgage for 30 years. Should I cut this down to 15?

Many homeowners are considering changing the term of their loan from a 30-year fixed-rate mortgage to a 15-year loan, according to Sandy Spring Bank’s Mr Hollensteiner.

This will not reduce your monthly payment, but if you do it now, it could mean that “this payment will not be much higher than what they are paying today,” he said. “So if they can save 12 years on the loan, over time it will be a huge savings in interest.”

How will the equity in my home affect the situation?

The difference between the value of your home and your mortgage balance is the amount of equity you have in your home and a key metric to keep in mind when refinancing.

Those who might want to refinance to cancel their private mortgage insurance must have a net worth of 20% of the value of the home.

Hollensteiner said some homeowners could benefit from a revaluation that will show how the booming housing market has boosted home values. Some homeowners may find that they have more capital than they previously thought.

Should you consider a cash refund?

The cashing refis allows borrowers to essentially swap out their current mortgage for a new one with a higher balance sheet and possibly a lower interest rate. This allows the homeowner to pay off the old mortgage, but still have cash left over.

The difference between your mortgage balance and the value of the home is then deposited into your bank account, which some homeowners use to renovate their home (which is becoming more popular, like so many others). spend more time at home), debt obligations or other financial goals and obligations. Cashing references have already reached the highest level since the 2008-09 financial crisis.

Ask yourself what you would do with the money. This might make sense if you complete home improvements that will add to your home’s resale value. Or, if you pay off debt and improve your credit rating. But if the extra money doesn’t do the trick, consider a refinancing option that lowers your payments and shortens the life of the loan.

How do mortgage points affect returns?

When lenders talk about mortgage points, think of them as “prepaid interest,” said Shant Banosyan, a loan officer at the mortgage lender’s Guaranteed Rate Company. These are additional charges attached to the face of the loan to fix the lower rate.

This increases the cost of closing the deal, but it’s worth it if your # 1 goal is to provide a lower rate and save on overall interest. “If someone is going to live in their home for 30 years, and it takes two years to recoup those costs, why not save money for 28 years?” he said.

How quickly do I need to act?

About three million homeowners are expected to refinance their mortgages this month, according to the company’s forecast.

Black Knight Inc.,

provider of mortgage technology and data. But make sure the refi solution is right for you. Remember – rates can always fall again in the future.

“I don’t want people to be in a rush, and I don’t want them to chase the bottom or the interest rate,” said Gordon Miller, president of Miller Lending Group. “Do the math. If I had a nickel for every time someone said, ‘We’ll never see rates this low again,’ I would retire in three years.”

There are several key players in the US mortgage market that play an important role in this process. Here’s what investors need to understand and what risks they take when investing in the industry. Telis Demos from WSJ explains. Photo: Getty Images / Martin Barraud

Write to Julia Carpenter in Julia.Carpenter@wsj.com

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