Mortgage Refinance Hinges on Clearing a Path to Lower Rates
Brian O'Connell |Jul 13, 2015
NEW YORK (MainStreet) -- The housing market is heating up, and that goes double for homeowners looking to refinance and (hopefully) lock in a lower interest rate.
The scuttlebutt among mortgage rate insiders this spring indicated rates would be going up this summer, but as the U.S. inflation rate low (at a rock-bottom 0.0%), rates are still at reasonable levels.
Right now, the average 30-year mortgage rate in the U.S. stands at 4.27%, according to BankingMyWay's weekly mortgage rate tracker. A caveat though. Rick Thorpe, a Doylestown, Pa.-based mortgage broker, says the lowest mortgage rates are only available to those consumers with good credit scores - think a 700 FICO score or better.)
Still, good deals are still out there for anyone with decent credit and for anyone with good credit who wants to cut his monthly mortgage payments.
Put it this way. A $200,000 fixed, 30-year mortgage at 5.5% would cost a homeowner $1,135 per month. But at a lower mortgage rate, say 4.3%, the homeowner would cut his monthly home payment to $978. You'd also save almost $20,000 over the life of the loan.
Surprisingly, financial experts say home loan borrowers may be unaware they can save money on their homes via refinancing. That sounds unreal in this, the information age, but it's all too true, according to Steve Trumble, president of Newton, Mass.-based American Consumer Credit Counseling. "Too many homeowners are unaware of the opportunities to refinance and save money," he says. "A lower interest rate can have a significant effect on monthly mortgage payments, potentially saving homeowners hundreds of dollars a year."
Many homeowners may know refinancing can save them money, but they just don't know the rules. For example, Zillow, the online real estate services site, says 47% of U.S. homeowners "incorrectly believe they must wait at least one year between refinancing."
To cut the best deal, know that knowledge really is power when it comes to mortgage refinancing. "Make sure it makes sense," says Yael Ishakis, vice president of First Meridian Mortgage located in Brooklyn, N.Y. "Figure out if the closing costs are worth the savings. And figure out if you're just starting your mortgage over and adding years to payback and not just lowering the monthly payment."
"Also, make sure you're going down in the 1% range in interest rates before you refinance your mortgage," Ishakis says.
Additionally, don't make any major career or money moves as you are in the refinancing zone. "Prospective borrowers should do their best not to make any changes to their employment while looking to refinance," advises Tali Raphaely, president of Armour Title Co., a real estate title firm. "Lenders look for stability - especially when it comes to one's credit and career."
Consumers should also be careful not to make any major purchases on credit while looking to refinance, because spikes in credit balances could affect credit score, Raphaely says. "One should not pay off any large credit balances while in the process of refinancing because that can also affect one's credit score," Raphaely says. "Remember, the rule of thumb is no big moves during a mortgage refinancing."
So, if you're in the market for a lower monthly mortgage payment, a good refinancing deal may be out there for you. There's no guarantee rates will remain relatively low, so get out there while the getting is good.