Refinancing Your Home to Take Advantage of Today’s Lowest Mortgage Rates has become a popular pandemic activity, right there with Zoom reunions, baking at home and making TikTok videos.
Nearly 1.7 million U.S. homeowners refinanced in April, May and June of this year – more than double the number who took out new loans in the same period in 2019, according to Attom Data Solutions.
The economic chaos, unleashed by the coronavirus, has sent mortgage criminals out, giving homeowners a major incentive to refinance and save. At current mortgage rates of 30 years, an estimated 15.6 Americans were able to recoup their interest rates and reduce them enough to reduce their monthly payments by an average of $ 289, says mortgage data firm Black Knight.
Rates are still widely available below 3%, and at least one loan even advertises a 30-year loan below 2%. Here are four tips on how to get the most out of refinancing a 30 year mortgage.
1. Get different mortgage deals and compare rates
Refinancing another 30 year loan is a good choice if your current mortgage is relatively young. You will not extend your interest costs as much if you are only in the house for a year or two and opt for a new 30 year fixed rate mortgage.
But lenders cannot assume that they will always be presented with the lowest possible rates. Different lenders can offer the same homeowner far more refinancing rates.
To find your best refi deal, you need to shop and compare rates – do not stop looking for the best loan you have been offered.
2. Polish your credit score
A better credit score brings better mortgage rates. Lenders such as lenders whose credit results are very good (in the 740-to-799 range) or not exceptional (800 to 850).
To get the kind of refinancing loan that saves you hundreds of dollars a month, you need to have a score of at least 720, says Black Knight.
Don’t know your credit score? It’s easy enough to watch for free.
If you find that your credit score needs some help, take steps to increase it:
- Pay down debt, especially on credit cards. A debt consolidation loan can help you repay faster, and at a much lower interest rate.
- Do not open new credit cards, but do not close old ones either. Doing so will reduce your available credit – which could hurt your score.
- Get your hands on your credit reports and make sure there are no mistakes that could drag your credit score. A 2012 Federal Trade Commission study found that 20% of U.S. consumers had potentially costly errors on their credit reports.
3. Show a lender that you are investing more in your home
Refinancing homeowners who have healthy amounts of money in their homes tend to refinance the lowest rates for 30 years.
Equity is the percentage of the value of your home that you own. To determine your equity, take the amount you have already paid on your home and divide that by what the home is currently worth. That number – that should be right of a decimal point – represents your share percentage.
For a lender, the ideal refi candidate has at least 20% equity, says Black Knight. If you still have a ways to go to reach the 20% level, you want to make a deposit that puts you over the line.
As an added bonus, you will not be forced to buy or keep paying for private mortgage insurance, or PMI, if you have at least 20% deductible in your home.
You should already have home insurance – it’s vital, and most lenders need it. But every time you revise homeowners policy for renewal, go online and get a whole lot of rate offers so you can feel confident that you are not paying too much.
4. Be prepared to pay ‘points’
The optional fees known as “discount points” are a type of prepayment that can help you tackle a low 30-year mortgage rate. One point equals 1% of your loan amount and can lower your rate by as much as a quarter of 1 percentage point – say from 3.2% to 2.95%.
Jaw-dropping mortgage rates typically come with points. United Wholesale Mortgage, one of America’s largest lenders, is currently advertising a 30-year mortgage with rates as low as 1,999%. The finding says the loan has “estimated financing costs of $ 11,000”, which presumably includes points.
“By paying points, you pay more in advance, but you receive a lower interest rate and therefore pay less over time,” says the U.S. Consumer Financial Protection Bureau. “Points can be a good choice for someone who knows they will hold the loan for a long time.”
You will need time to break even on the points and other closing costs before you can really start enjoying the savings of your low mortgage rate.
The CFPB says that lenders have their own individual pricing structures, so you should not assume that a loan with points will always have the lowest rate. You may find that another loan offers a loan with zero points and a better rate.
It’s another good idea to collect multiple loan offers and check them out side by side – to make sure you get the cheapest mortgage available to you.
