How to decide if you should refinance your mortgage

With the Federal Reserve rate nearly zero, it has never been cheaper for Americans to borrow money.

For current homeowners, now is the time to refinance your mortgage, especially to keep more money in your bank account amid the uncertainty of the COVID-19 pandemic. But just because mortgage rates are low doesn’t mean refinancing is right for everyone.

There are several very clear ways to determine whether you should refinance your mortgage now or wait a little longer. But before doing your research, it’s always a good idea to visit a multi-lender site like Credible to compare mortgage lenders and see what types of mortgage rates are currently available. See if you qualify for a low rate today.

4 ways to tell if it’s time to refinance

Here are four quick ways to determine if you should refinance your mortgages now.

1. You have a good credit score and a good debt-to-income ratio
2. You have compared mortgage rates and mortgage lenders
3. You’ve crunched the numbers
4. You plan to stay put

1. You have a good credit score and a good debt-to-income ratio

The higher the score and the lower the debt-to-income ratio (DTI), the more likely the borrower is to get the best loan term and mortgage rates.

If you are confident in your credit score, you can put some of your information into Credible’s free online tool to find out what type of mortgage refinance rate you qualify for today.

BOOST YOUR CREDIT SCORE WITH THESE EASY STEPS

In order to do the math on what you could potentially save, you first need to know these numbers before you shop. Do you know your credit score? Can you calculate your DTI?

How to Check Your Credit Score and Debt Ratio

Your credit score is fairly easy to find using one of the many free online credit score websites and it is easy to find a rough measure of your debt to income ratio.

1. First, take your monthly net income before tax
2. Then add up all the debt payments (mortgage, car payments, student loans, credit cards)
3. Then divide your debt by the gross monthly income to get a percentage

According to the Experian credit bureau, lenders generally like to see a credit score of 620 or higher on a mortgage refinance. When it comes to the debt to income ratio of any type of mortgage loan, most lenders prefer borrowers to have less than 40% DTI.

2. You have compared mortgage rates and mortgage lenders

The only way to know if you will receive a lower rate than what you currently have is to shop around for interest rates with several lenders. By doing rate purchases, you can easily see what rates you can currently qualify for and whether lenders are offering incentives such as low closing costs for refinancing.

To shop with multiple lenders at once, use Credible to compare refinance rates and loan options from the comfort of your home in minutes.

4 WAYS TO GET LOWER MORTGAGE REFINEMENT RATES

3. You have crossed the numbers

Dust off your math hat; the best way to determine if refinancing is putting money back in your pocket is to use all of the free online tools available to you.

Credible can help you calculate the numbers. In just three minutes, you can get prequalified rates from multiple mortgage lenders without affecting your credit score. See how much refinancing could save you now.

Using a refinance calculator with your own numbers – loan balance, interest rate, closing costs – lets you see how much you can save, how long it will take to pay closing costs, and how much. interest you will now pay during the term of the loan. With powerful calculations in your hand, you can decide if now is the best time to refinance in addition to knowing how much refinancing can lower your monthly payment.

MORTGAGE REFINEMENTS ARE OUTDOOR

4. You plan to stay put

Many homeowners are surprised at the costs associated with refinancing a mortgage.

After all, you are taking out a brand new loan, so the closing costs are about the same as when you originally bought the house. Fortunately, homeowners can factor these costs into the newly refinanced loan, but these costs could outweigh the benefits of refinancing, at least in the short term.

To research interest rates and review multiple lenders at once, visit Credible to connect with experienced loan officers who can answer your mortgage reference questions.

THE BEST (AND WORST) REASONS TO REFINE YOUR MORTGAGE

For refinancing to be meaningful, you need to be prepared to commit to staying in the house for as long as needed to recoup your closing costs (your “breakeven point”) and recognize some savings. Depending on the closing costs and the amount you refinance, it can take a year or more.

The bottom line: If you are potentially considering a short-term move (say, the next two to three years), mortgage refinancing may not be right for you.

After evaluating the above four actions, you can determine that you are ready for refinancing and that you would save a lot of money by doing so. But don’t wait too long – while industry analysts predict interest rates will stay low for about a year, even a slight change in interest rates can cost thousands of dollars.

• For example, the average interest rate for October 2020 is 2.625% on a 30-year fixed rate. This means that a person with a loan of $ 500,000 would pay $ 80,000 in interest over 30 years.
• Another individual waits a month until December 2020 and gets an interest rate of 2.825%. Even if it’s only slightly higher, the difference costs an additional $ 47,000 over 30 years on the same loan of $ 500,000.