Do you think you’ve missed your refinancing opportunity as the mortgage rates are rising? Well, maybe you haven’t. Though rising, mortgage rates are still historically low, according to mortgage analysts. Here are eight tips that will help you successfully refinance your mortgage despite the rising mortgage rates:
1.Make your move fast
With mortgage rates expected to be on a steady, upward trajectory, the best time for refinancing, if you are considering it, is now. The more you delay, the higher is the rate likely to be. Please do your research about what may be the best rate to get, and act swiftly to procure it before the rate increases.
2.Prepare in case rate drops
Again, you’d want to put in your refinance application papers the soonest as possible. Yes, you want to avoid the rise in existing mortgage rates, but what you want to avoid even more is a backup in refinance applications if the rates fall suddenly.
Since there is no obligation to lock in a rate when applying, you can wait and watch the market rise and fall for as long as you wish.
And if you think now is not the best time to submit your application, ensure that your credit score is consistently high, your upfront mortgage fee is ready, and your financial documents well in place.
3.Make sure your credit score is in good shape
If your credit score is low or in bad shape, acting quickly on your refinance application may not be of much use. There will be low rates in the market, but just not available for you.
Bolster your credit score by checking your credit report for errors, paying bills on time, and not using up all your credit limit. Apply for the refinance only when you think you will qualify for the low rate.
4.Use rising home prices to your advantage
Home values, too, are rising along with the rates. You can choose a cash-out to refinance to tap into your home’s equity. However, be careful; you do not want to spend the proceeds on cars, which won’t rebuild your equity. You may also choose to go with a home equity loan or a home equity line of credit.
5.Refinance into an ARM
If you plan to stay in your home for a short period, perhaps for the loan term, refinance into an adjustable-rate mortgage. It makes sense since they mostly come with lower initial interest rates than fixed mortgages. Be aware, however, that your rate may eventually increase.
6.Refinance to a shorter-term
A shorter-term loan is likely to save you money. Not only will you save on the interest of all those extra years, but also you are likely to score a lower rate. According to a study, a 30-year loan is likely to be spiked by around 1% over a 15-year loan.
You can choose to pay money upfront, before your loan closes, to lower your interest rate permanently. This is known as pay points.
One point is equal to 1% of the amount you loan. Depending on the interest rate market, you can calculate how much money you have to pay. You cannot pay in full points. In a volatile market, you may be required to pay more to bring down the rate. You can hence wait for the market to stabilize, and they pay points.
- Refinance out of an ARM, HELOC
If the rising rate of interest on your adjustable-rate mortgage or home equity line of credit has become a concern for you, you can refinance into the lowest fixed rate mortgage you get that will lock in the new rate, and the monthly payments will be pretty much predictable.
You can also refinance the first mortgage and wrap your second mortgage into it. However, if you are locking in at a notably higher rate, the strategy is of no use.