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Last updated on February 2nd, 2021 at 12:55 pm
Thanks to the coronavirus pandemic federal reserves are offering competitive rates in an effort to stimulate the economy.
While the mortgage rates fell to historic lows, the home buyers have benefited by the lowest interest rates. If you went home shopping, you may have locked the rates below 3% some even have seen rates as low as 2.5%.
While for refinancing one needs to explore, do intense rate shopping to gain bigger savings as some lenders and banks have higher interest rates for refinancing loans.
Why are mortgage interest rates higher when a borrower is refinancing and why is it lower when the borrower is purchasing a home?
- When all of a sudden refinance applications hit the roof the lenders had to spend a long time processing the loan while home buyershad a fixed closing date so they were given priority over refinancing.
- Also, it cost more to lock the interest rate to the lender compared to the purchase rate.
- The fall out rate of borrowers was larger when the interest rates went down leading to wastage of the lender’s time and locking cost.
- Multiple refinance resulted in more lock jumpers with the borrowers leading to a huge difference in the lock cost of the borrower and purchaser loan.
- To get a better refinance rate one needs to have a good credit score .we also need to remember that refinancing can come with a heavy closing cost.
Different Types of Refinancing:
How to Refinance?
To refinance, you will need to apply for a new mortgage. Identify a lender you are comfortable with.
Check for the lowest lender rate. Ones identified then the lender will verify your employment status and do a credit check. Ask your lender and have all your documentation ready.
When to and When Not to Refinance
The best time to refinance is when the rates are low enough for you to save your money on your mortgage.
Refinancing saves your money when they can lower your interest rate enough to make up for the closing costs which is about 3-6% of the loan amount.
You should not refinance when your credit score is low or if you are unemployed.
Ways to Lower the Refinance Rate Now
- Commit to 15 years v/s 30 years fixed rate loan – of course keeping in mind your budget, if you can handle higher monthly outgoings commit to a shorter term, as rates for a 15-year fixed-rate loan are lower than for 30-year agreements so you can save in the long run.
- Cash out refinance is riskier- it has a higher interest rate if you don’t need extra cash immediately do not opt for cash out refinance.
- Good credit limit – DTI and credit limit are very important and affect your possibility of best rates. Avoid taking other loans, getting new credit cards, which might have repercussions on the lender’s response.
