The ongoing pandemic has had a severe impact on Americans’ personal finances. With millions unemployed or underemployed, saving money is a top priority.
One of the largest bills most consumers pay is their mortgage. Amid continued economic uncertainty caused by COVID, mortgage rates fell to 50-year lows in January, with the average rate on a 30-year fixed-rate mortgage sinking to 2.65%, according to Freddie Mac.
While mortgage and mortgage refinance rates have inched slightly higher since they remain at historic lows. For interested homeowners, now may be the best time to refinance. If you're looking for lower monthly payments, today's mortgage and mortgage refinance rates are worth exploring. The savings calculated from a mortgage refinancing could be significant.
Ready to explore mortgage refinance options? Visit Credible to compare rates and lenders.
To ensure you maximize mortgage refinance savings, consider the following steps:
Review your finances before applying
Before contacting lenders, determine how much you still owe on your mortgage. Review the terms of your existing loan and compare them to those of the new loan. Don’t forget to factor in closing costs, which accompany a mortgage refi. Once you have all of these figures, you’ll be able to calculate how much you’re likely to save.
In order to refinance your mortgage, you’ll have to supply much of the same information as you did when you applied for the initial financing, Sarah Alvarez, executive mortgage banker at William Raveis Mortgage, pointed out.
"This means you’ll have to have a lot of documentation in order, including two years of federal tax returns, W2s, thirty days’ worth of your most recent pay stubs, and complete sets of all asset account statements," she said.
Get your credit in order
Securing the lowest possible interest rate can save you thousands of dollars over the life of the loan. The higher your credit score, the more likely you are to qualify for that coveted low rate. Mortgage lenders usually require borrowers have a 620 or higher credit score. If your credit score could benefit from a boost, there are several ways to increase it.
To begin, pay off or pay down outstanding debt, and pay your bills on time.
"Late payments also have a severe negative impact," noted Alvarez. "So it is important to stay current on all bills. Because many people have relocated recently, it’s especially important to make sure your address is up to date with any creditors."
Minimize your credit usage and avoid opening any new lines of credit
"During the mortgage process, you must refrain from taking on any new credit," Alvarez advised. "So no new car loans, credit cards, et cetera, as these can have an impact on the refi and will be factored into your debt to income ratio."
Request your credit report from AnnualCredit.com and check for errors. If you spot any inaccuracies, dispute them. Not sure where you fit on the credit score spectrum? Then you should start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.
Compare and shop lenders
To find the best mortgage refinance rate, you’ll want to shop around. The Consumer Financial Protection Bureau (CFPB) recommends comparing at least three loan offers from different lenders. Once you have all offers in hand, don’t be afraid to negotiate and ask if lenders can do better by lowering the interest rate or points, or reducing or waiving fees, the CFPB advises. Doing so may save thousands over the length of the loan.
To see what rates you might be eligible for, visit Credible and compare rates and lenders. You can see the loan options across multiple lenders with just one simple form.
Check the fine print for fees and costs that could offset benefits tied to rates
Before you sign, make sure you understand exactly what you’re paying for and how much it’ll cost.
Just as with your mortgage, expect closing costs. So, if you’re not going to remain in your current home for more than a few years, it may not pay to refinance. Similarly, Alvarez explained that some loans may require you to pay points to lock in a low interest rate. If that’s the case, you must calculate how long it will take for you to recoup these costs.
"Make sure that it makes sense for your plan in terms of keeping the mortgage and property," she said. "You can do this by finding the monthly savings and determining how many months it would take to realize them over the amount paid to reduce the rate. Make sure you review everything closely and take into account any additional fees or hidden expenses that might make the refi not worth it."
Have questions about your mortgage or refinancing? Visit Credible to get in touch with experienced loan officers and have your questions answered.
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