The one good outcome of the economic chaos surrounding the pandemic is some of the lowest interest rates we’ve seen in a long time. But before you rush to refinance your home, there are three things to consider.
- Do the Math
Yes, the interest rates are historically low, but they might not be low enough to make it worthwhile. If you’ve refinanced your home in the last couple of years, the difference in interest rates might not be significant enough to trigger a need to refinance. The rule of thumb is that interest rates should be a full percentage point lower than your current rate. When shopping for loan rates, be sure you’re comparing apples to apples. Some financial institutions will seem like their rate is much lower, but the rate might include you buying points to receive that rate. Buying points means you’re paying for a full percentage of your mortgage at the time of closing to receive that lower rate. It might not be worth it in the long run. Just be sure to do your homework and crunch the numbers ahead of time. Keep in mind, that credit unions usually offer some of the lowest mortgage rates around.
- Check Your Credit
Given the financial fallout many of us are facing due to being laid off or having our hours cut, your credit score may have taken a hit. Visit Credit Karma or Nerd Wallet to get your credit score for free to see where you stand. If your credit score isn’t what you expected, you might want to get a free copy of your credit report at annualcreditreport.com. Review your information and credit history in your report to see if there are any errors or you may discover where you went wrong. Click here to learn how to read your credit report. If your credit needs a boost before you can refinance, we have a few tips to help you fine tune your credit.
- Figure Out Your Future
If you’re only planning on being in your home for a few more years, then it probably won’t be worth refinancing. While you can save money in the long run when you refinance, there are a lot of up-front costs to consider. These include application fees, appraisal fees and closing costs. But if you’re planning on being in your home a decade or more and the interest rates are a percentage point or more lower than where you are now, then it might be time to refinance!
The current pandemic makes us reconsider many things these days, especially any unneeded person-to-person contact. If you’re skittish at the idea of refinancing, there are a few things to think about. Appraisals usually involve meeting the appraiser at your home. But these days, many companies are allowing drive-by appraisals where no direct contact is needed. Also, mortgage closings almost always involve sitting with someone in person to sign all of the papers. But thanks to electronic document signing options, your closer may be willing to do it all via email. It’s definitely worth asking about if meeting with your mortgage representative in person is a concern.
Still think refinancing is for you? Our partner Mortgage Center is here to help answer any questions you may have or to get your refinance underway. Click here for details.