Though mortgage rates competitive since the beginning of the year, last week there was an unexpected drop. It spread to refinancing ratesand existing homeowners have been eager to take advantage of this.
Result? According to the Mortgage Bankers Association, mortgage refinancing applications for the week ended July 9 rose 20% from the previous week.
now this is an It is worth noting that the demand for refinancing was still 29% lower than in the same week a year earlier. Still, it is clear that borrowers were willing to benefit from the sudden drop in rates.
If you haven’t refinance your mortgageyou might be wondering if you should join the win and apply. You can answer these questions to resolve.
1. How is your credit rating?
The advantage of refinancing mortgages today is the ability to fix a fairly low interest rate from a historical point of view. But you are more likely to get such an attractive rate if you come with a strong credit rating – Ideally, medium to high – 700 or higher.
If your credit score isn’t in the best shape, this may not be the best time to refinance. In this case, you can work on raising your score apply for refinancing in a few months.
2. What is your current mortgage interest rate?
When you signed up for a mortgage, you could lock in a very low rate on it. If so, the refinancing may not pay off. This is because if you can lower your rate even a little, it probably isn’t worth it. closing costs you will be charged.
Closing costs are the different fees you will pay to get a new home loan. These include things like application fees, registration fees, and evaluation fees.
Suppose you find out that you are eligible for refinancing on a 30-year fixed loan at 3.2% per annum. If you are currently paying 3.5%, it might be worth waiting for refinancing until rates drop further, especially if you have to pay a few thousand dollars to close the deal. Of course, we don’t know if mortgage rates will drop further, but for a $ 200,000 loan, the difference in monthly payments between the 3.5% and 3.2% interest rate is only $ 34.
3. How long do you plan to stay in your home?
As mentioned, you will pay the closing costs to refinance your mortgage. They usually range from 2% to 5% of the loan amount. You need to make sure that you intend to live in your home long enough to recoup those fees and come out ahead.
Here’s an example: A refinancing lender charges $ 5,000 to refinance a $ 200,000 mortgage. Refinancing saves you $ 250 a month, but it will take you 20 months to pay off before you start collecting savings. If you plan to move within two years, refinancing won’t make sense. But if you know you are going to stay in your home for at least five years, it becomes cost effective.
The fact that homeowners reacted to the mortgage rate cut last week by hastily refinancing is not surprising. Even if rates fluctuate over the next number of months, they are likely to remain low for the rest of the year and possibly beyond. So it is worth considering exchanging your existing mortgage for a new one with more favorable terms.