8 Tips for Refinancing as Mortgage Rates Rise

Do you think you’ve missed your refinancing opportunity as the mortgage rates rise? Well, maybe you haven’t. Though growing, 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 the rate is likely to be. Please research the best rate to get and act swiftly to procure it before the rate increases.

2. Prepare in case the rate drops

Again, you’d want to submit your refinance application papers as soon as possible. Yes, you want to avoid the rise in existing mortgage rates, but what you want to prevent 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 are well in place.

3. Make sure your credit score is in good shape

If your credit score is low or bad, acting quickly on your refinance application may be useless. There will be low rates in the market, but they are unavailable.

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 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. You will save on the interest of all those extra years and are likely to score a lower rate. According to a study, a 30-year loan will be expected to be spiked by around 1% over a 15-year loan.

7. Pay Points

Before your loan closes, you can pay money upfront to lower your interest rate permanently. This is known as pay points.

One point is equal to 1% of the amount you loan. You can calculate how much you must pay depending on the interest rate market. You cannot pay in full points. In a volatile market, you may be required to pay more to bring down the rate. You can wait for the market to stabilize, and they pay points.

1. Refinance out of an ARM, HELOC

Suppose the rising interest rate on your adjustable-rate mortgage or home equity line of credit has become a concern for you. In that case, you can refinance into the lowest fixed-rate mortgage you get, which will lock in the new rate, and the monthly payments will be predictable.

You can also refinance the first mortgage and wrap your second mortgage into it. However, the strategy is useless if you are locking in at a notably higher rate.