Have you noticed that mortgage rates are rising and are worried about refinancing your home? The good news is, you did not miss your chance. It may seem that mortgage rates are higher than they were last year, but in fact, he are still at a historical low. They are not predicted to go over 5% in 2017, according to most economists and mortgage analysts.
These 8 tips will help you refinance successfully as mortgage rates increase.
1. Be speedy
Although rates are predicted to remain at this historical low, they seem to be rising at a pretty steady rate, so the sooner you refinance, the lower your rate is likely to be.
According to Lauren Lyons Cole, a certified financial planner and money editor at Consumer Reports, she recommends that “now is the time” if you are considering refinancing. She claims that she doesn’t believe the rates will get lower than they are right now.
So we advise that you do your research, find the best rate you can get, and make a quick decision before it rises more.
2. Watch out for a drop in the rates
The process of refinancing takes several months, so you want to start the system as soon as you can. Submit your refinance application quickly so that in a lucky scenario where the rates suddenly drop, you won’t miss it because you are waiting for your application to get approved.
Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage” says that the biggest mistake people make is this application delay error. “If you’re not in the pipeline ready to go when the interest rates start moving down, all of a sudden you have to get in the back of the line, and oftentimes you miss the dip in the rates.”
Once your application is approved, you are not obliged to refinance straight away, you can wait as long as you wish. This is great because you’ll be able to take advantage of the drop in the rates as soon as they happen.
If you need more time before you can start filling out your application, make sure you are prepared in other aspects. Keep your credit score up and get all the financial document you need ready. Also, you may want to save money for fees you might incur.
3. Improve your credit score
One of the first things the bank looks at when you refinance, is your credit score. This can damage or improve the deal you get, so you want to make sure you have the best possible credit score when you apply for refinancing. In order to qualify for the lowest possible rates, you need the highest possible credit score.
If your scores are lower than you would like, take a few months to work on them. There are many ways to improve your credit score and you can go from 500 to 700 in just three months, if you do everything right.
The main ways to increase your score is to check your credit report for errors, pay your bills on time and don’t come too close to your credit limit.
Mortgage rates are rising slowly, so taking three months to improve your credit before applying for refinancing can make a huge difference. Try to qualify for the best rate you can, especially if you are looking for a long-term mortgage.
4. The value of your house may be increasing
Mortgage rates aren’t the only thing going up, so are home values. You should look into the value of the house and maybe consider a cash-out refinance. But be careful, as you can get into financial trouble if you don’t do this the right way. Only spend the cash on things that rebuild your equity, not on a car.
Due to the increase in home value, you might also want to consider things like a home equity loan.
5. Consider an ARM refinancing option
An adjustable-rate mortgage might be a good option during a time of rising rates. These loans usually have lower initial interest rates than fixed mortgages. This is something you should consider if you plan to continue living in your home only for the duration of the fixed term of the loan.
Make sure you research into the potential drawbacks of this kind of mortgage before you commit. There is a chance that your rate will increase. Make sure you receive the lowest possible rate to start off with.
6. Consider a short-term mortgage
Short-term fixed mortgages might save you money in the future. The interest rate may be lower than a 30-year fixed deal and you may save money over the course of the loan by paying less interest.
It may seem confusing, but in the long-run you can save more money. Only choose this option if you can afford it. This can also help you build equity faster.
7. Upfront payments to decrease future cost
There’s a term called ‘paying points’ which means that you can pay money upfront before you close your deal on the loan. This reduces your interest rates for the future. If you can afford this upfront cost, it is definitely worth doing.
You usually won’t get to decided how many points to pay. Each point is equivalent to about 1% of your loan. The amount of money that is worth one point will depend on the current interest rate market. When the market is volatile, you will likely be asked to pay more to reduce the rate. When the market is stable, as it is now, you will pay less.
8. Balance out you ARM with a fixed-rate mortgage
If you are worried about your adjustable-rate mortgage, since rates are rising, you might want to consider refinancing to a fixed-rate mortgage. This will let you lock in a new rate so that your monthly payments are more predictable.
If you’re borrowing with a HELOC, watch out for a recast period. This is when the draw period ends and you have to pay more than just the interest on the loan. Check out your options as soon as you can since rates are increasing.
Here is what you can do; call your bank and ask to switch to a fixed rate (you may be asked for higher rates). Or, refinance you HELOC into a home equity loan at a fixed rate. Or, refinance your original mortgage by joining it with a second mortgage. But only do this option if you think the new rate is better than staying with your current loan.