Mortgage Rates Are Low. Is it Time to Refinance?

If you’re ready for a lower interest rate or shorter term for your mortgage, now could be a great time to consider refinancing. Rates available to consumers are low right now and probably aren’t going to go any lower in the foreseeable future, according to Scott Sheldon, a senior loan officer and consumer advocate based in Santa Rosa, California, as well as a Credit.com contributor.

And while, on the flip side, he doesn’t see rates increasing dramatically either, he suspects they’ll be up to 4% by the end of the year.

“The borrowers that would stand to benefit from a refi are those who bought a house last year, number one, because they probably scooped up something at 4% or 4.25% on a fixed-rate loan last year, and that same product, or maybe a shorter-term loan, whether it’s a 20-year, 15-year or a 30-year is probably half a percent lower right out of the gate,” Sheldon said.

But, as Sheldon also pointed out, every homeowner’s situation is different, so before you decide to refinance, it’s good to weigh the costs and benefits of refinancing. Here are some other considerations you’ll want to keep in mind when considering refinancing.

What Are Your Goals?

If you’re looking to reduce your monthly payments, and free up some of your income for other expenses or savings, now might be a good time to consider refinancing, Sheldon said.

Or, perhaps you’d like to pay down your mortgage more quickly. A shorter-term debt structure could help you do that.

“Maybe you’re making more money in your job now, your income is higher … maybe you want to go to a 20-year loan at a 3.3% rate and it won’t be a burden on your cash flow because you’re making more money,” Sheldon offered as an example.

And even if you refinanced at some point over the last few years “you owe it to yourself to at least explore what could be attained in this environment,” Sheldon said.

What You’ll Need to Refinance

Before you reach out to a lender to discuss refinancing, there are a few things you should take care of, Sheldon said, starting with your credit.

“No. 1, unequivocally, is get your credit in check,” he said. “Make sure that if there’s anything on your credit that needs repairing or correcting, or if you need to pay down debt, make sure you put your best foot forward for the loan.”

You can start that process by checking your free credit report summary, updated every 14 days, on Credit.com. It’s also a good idea to take a look at your free annual credit reports, which you can get at AnnualCreditReport.com.

Next, he recommended getting all of your necessary paperwork in order, including W2s and tax returns for the last 2 years, plus your pay stubs for the last 30 days, bank statements for the last 60 days, and keep digital copies of those in a secure, but readily available, location.

“If you want to be opportunistic with interest rate movement, always have your tax returns and your W2s quickly available so you can quickly retrieve them for a lender,” Sheldon said. “That way, if you’re timing the market and you’re chipping away at your loan you can do that and it’s not going to be a burden for you to put together all of that stuff from scratch.”

Make Sure Your House is Ready

Getting your home ready for refinancing isn’t as strenuous as it is getting it ready for sale. Home improvements aren’t really going to matter, but safety issues will — a deck that has deteriorated to the point of being unsafe, faulty wiring, an empty pool, or any construction that does not meet code, it could hinder your ability to refinance.

“Obvious health and safety stuff is going to affect any loan, it doesn’t matter if it’s FHA, conventional, VA, jumbo, it doesn’t matter,” Sheldon said. “Any appraiser is going to call that stuff out.”

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