Refinancing Mortgage Rate

Your Refinancing Mortgage Rate Depends on Your Financial Health
Most people refinance for one of three reasons: 1. rates have fallen and they want to save money, 2. their financial situation has significantly improved and they qualify for a lower rate, or 3. they need money for home improvements and are borrowing against their equity.

Refinancing your mortgage is a good choice when rates have fallen below your current rate or you have a variable rate. You can refi for the same amount or take cash out, depending on how much equity you’ve built.

Regardless of your reason for refinancing, your new rate will depend on your:

Current financial picture, including income and credit score
Current additional debts
Payment history
Home equity

Most lenders won’t offer an excellent refinance mortgage rate to borrowers with a poor credit history, little equity, or low income. To ensure a good rate, clean up your credit before you apply for a new mortgage.

You can find current refinancing mortgage rates online. These rates are usually for people with credit scores above 720. To see rates for a variety of credit scores, visit the FICO website. You can also buy your credit scores and order credit reports while you’re there.

Consider Several Factors Before Refinancing

Before refinancing your mortgage, take several factors into account:

Interest rate on your existing loan
Interest rate on the new loan
Whether the rates are fixed or adjustable
Closing costs and fees
Loan term
Time to recoup costs

If your existing loan rate is lower than current rates, then you would be better off applying for a home equity loan. If the interest rate on the new loan is lower than your existing loan, you should consider the additional factors. If your existing loan is an adjustable rate and rates will soon reset, locking in a fixed rate can save you money over the long term.

Some lenders offer loans with no closing costs and no fees. Unfortunately, these loans usually have a slightly higher interest rate than loans with closing costs and fees. Compare both rates and figure out whether paying the costs will save you money in the long term.

You should also consider the new loan term. For a simple refinance without a cash-out, ask that the loan have the same term as the term left on your existing loan. If you have 25 years left, your new loan should have a 25-year term. You may erase your savings if you refinance to a rate that is only slightly lower, but adds several more years to the loan.

Finally, consider how long it will take you to recoup the costs of refinancing. If you only plan to stay in the home for three more years and it will take five years for your savings to total more than your refinancing costs, then refinancing isn’t worth it.

If you need to refinance to consolidate debt or make home improvements, then consider those costs as well when making your decision. When done right, refinancing can save you thousands of dollars over the life of the loan.