Table of Contents
Instead of spending another weekend quarantining in front of Netflix or reuniting on Zoom with classmates or former co-workers you barely remember, why not do something really valuable?
Mortgage rates in 2020 have never been lower: The average for a 30-year fixed-rate mortgage dropped below 3% for the first time, and some lenders are offering loans at 2.50% and even lower.
So this weekend, why not start the ball rolling on a mortgage refinance that will cut your housing costs?
Chances are, it’s time for you to refi. The data firm Black Knight recently said 19.3 million mortgage holders are ripe for a refinance and could save an average $299 per month. Close to 2.5 million could save $500 a month or more.
Sure, with a refinance there are forms to fill out, tax returns and other documents you’ll need to pull together, closing costs to be paid. But the sooner you get started, the better. Here are four steps to begin the process this weekend.
1. Be certain a refi is the right move
Today’s cellar-dwelling mortgage rates may look very appealing, but the terms of your existing mortgage could make refinancing a bad call.
Some mortgages carry a penalty for early repayment, especially during the first few years of the loan. You also could run into legal complications if you took advantage of a local government grant program, like one for first-time homebuyers.
Before you start down the path toward a refinance, read over your loan documents carefully to make sure you won’t get dinged with exorbitant fees.
Consider several other criteria to determine whether a refi is right for you.
According to Black Knight, you’re in a good position to land a money-saving refinance loan if you’ve currently got a 30-year mortgage, have at least 20% equity in your house, and could reduce your current mortgage rate by at least three-quarters of 1 percentage point (0.75).
Oh, and there’s one more thing …
2. Make sure you have a decent credit score
Black Knight says having a credit score of 720 or better is essential.
That would put you at least in the middle of the “good” score range (670 to 739), though you’re in even better shape if your credit score is very good (740 to 799) or exceptional (800 to 850).
Lenders have always looked closely at credit scores, but they’ve become extra picky during the current COVID-19 recession.
Aren’t sure where your credit score stands? Nowadays, it’s very easy to check it for free.
If your score needs improvement, you won’t be able to fix it this weekend, but you’ve got time. The Federal Reserve has indicated it’s likely to hold its key interest rate near zero for the next two and a half years, and mortgage rates are likely to stay low for a long time, too.
Relatively quick steps to help raise your credit score include: paying down your credit cards, maybe with the help of a debt consolidation loan; restraining yourself from opening new accounts; and keeping open old credit cards, because the unused credit can help boost your score.
3. Compare offers to find the best rate
With mortgage rates so low, you might be tempted to pounce on the first refinance offer that comes along. But by shopping around and comparing loans, you might find a much lower rate and much bigger savings.
A study from LendingTree earlier this year found that different lenders can offer the same borrower mortgage rates that vary by as much as 1 percentage point or more. One lender might offer you a new 30-year mortgage at 3.80% but another might have a similar loan at 2.75%.
Comparison shopping can save you as much as $52,000 in interest costs over the life of a 30-year loan, LendingTree found.
Shopping around for a refinance loan is particularly important right now because some lenders are raising their rates to factor in a new 0.5% refinance fee that takes effect Dec. 1, while others are holding off.
Experts recommend that borrowers go online, gather quotes from several lenders, and review them side by side to find the best rate available in your area and for your credit profile.
If you find something you like, submit your mortgage application this weekend and wait for the lender to get back to you with a loan estimate detailing all of the costs.
4. Talk with a pro
The best way to feel confident that refinancing is the right decision and good for your long-term financial plan is by consulting with a professional.
Financial planning services are available online now and can provide you with top-of-the-line financial advice — without the high fees.
A certified financial planner also can help you create a retirement savings plan tailored to work with your mortgage.
That way, once your home loan is fully paid off you can rest easy knowing you’ve got a chunk of change stashed away in an asset you might tap during your golden years.
A simple 30-minute call this weekend can get you set up with an adviser who will work with you on your financial goals and priorities — and show how a refinance can help you achieve them.