If you want to refinance, but mortgage rates are rising. Don’t worry you haven’t missed the boat on you refi opportunity. Mortgage rates are still historically low, and they aren’t expected to exceed 6% in 2018, according to many economists and mortgage analysts. So here are eight tips to help you successfully refinance your mortgage as rates rise.
Make Your Move Fast
Even though rates aren’t expected to shoot through the roof this year, they’ll likely stay on a steady, upward trajectory. If you’re thinking about refinancing, now is probably the time to do it. It’s worth doing your research to see what rate you can get and then acting swiftly before it’s too late.
Prepare In Case Rates Drop
You’ll want to get your refinance application in as soon as possible, not only to catch low rates before they rise but also to avoid a backup in refinance applications should rates suddenly fall. This is the biggest mistake people make. 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 te dip in the rates.
You’re not obligated to lock in a rate when you submit your application. You can wait and watch the market for as long as you want. If you’re not ready to submit your application just yer, work on keeping your credit score up, have your financial documents ready to go, and save money for the upfront refinancing fees. Just remember that rates are rising slowly but steadily.
Make Sure Your Credit Score is in Good Shape
Acting fast on a refinance may not be worth it if your credit score isn’t in top shape. Your credit score plays a big part in the rate you can get on a mortgage. Just because low rates are out there doesn’t mean you’ll qualify for them.
Some ways that you can work on your credit include checking your credit report for errors, paying your bills on time and keeping a safe distance from your credit limit. Mortgage rates aren’t going to go a full point between now and the next three months. Taking the time to get your credit score to a place where you qualify for the best possible rate could make a huge difference over the course of a 30-year mortgage.
Using rising Home Prices to Your Advantage
Along with rates, home values are rising. Now might be a good opportunity for you to tap into your home’s equity through a cash-out refinance. If you do so, proceed with caution. It’s risky to spend the proceeds from a cash-out refi on things that don’t rebuild your equity, like a car. You can also access your home’s increasing value through a home equity loan or home equity line of credit.
Refinance to a Shorter Term
Refinancing into a shorter-term fixed-rate loan can save you money in two ways: the interest rate is lower than a 30-year fixed-rate loan, and the shorter terms means you’ll save more money over the life of the loan by paying less interest.
Here’s an example: For a 30-year, $300,000 mortgage taken out in 2010 with a 4.75% fixed interest rate. Then refinance it to a 15-year mortgage with a 3.5% fixed interest rate. Savings equated to $52,975 over 15 years. While your original monthly payment of $1,565 would take on an extra $311 each month, you would save more money in the long run and build equity faster.
Pay Points
Before your loan closes, you’ll have the option to pay points on your mortgage, which is paying money upfront, to permanently lower your interest rate.
While one point equals 1% of your loan amount, you won’t always have the option to pay in full points. The amount of money you have to pay to buy down your rate depends on the interest rate market. If the market is volatile, then you’ll probably have to pay more to buy down the rate. But if the market is stable, then you’ll pay less.
Refinance Out of an ARM, HELOC
If you’re concerned about the interest rate rising on your adjustable-rate mortgage or on your home equity line of credit, refinancing to a fixed-rate product can allow you to lock in a new rate to make your monthly payments more predictable.
