If you’ve been sitting on the sidelines waiting for mortgage rates to drop further to secure your refinance – think again! Mortgage rates have dropped sharply from June and are now slightly above 4% for the average 30-year fixed mortgage.
I know the Fed’s plan to soon taper their bond-buying program has many of you cautious to enter the market in late 2013, but this is not going to affect your rate today. With little economic data hitting the markets, rates remain volatile and may change with the headwinds.
We’ve had hundreds of inquiries from borrowers in our forums looking to refinance their mortgage, and some are hesitant to do so in fear they are basically giving up all they’ve paid over the last 5+ years. This is far from the truth, in many cases a refinance can be extremely beneficial if you know exactly what you are getting yourself into. Always work with a trusted loan officer who will take the time to explain which program(s) best suits your needs and overall goals for your home.
Stop waiting and start shopping
If you obtained your mortgage back in the early-mid 2000s, you are probably stuck with a much higher interest rate than what today has to offer. Like I mentioned above, interest rates have fallen in recent months and are subject to change at anytime. The Federal Reserve is to make another announcement later this month, but with the gov’t shutdown and political turmoil, we don’t expect to hear any significant changes to taper talks until December or early 2014. Unfortunately, we are not experiencing the same rates that were being offered at the beginning of this year – which stood around 3.5% and were marked at record lows. However, they are still very low from a historical standpoint and are expected to gradually rise in 2014.
Looking to pay off mortgage sooner?
If you dream about one day being mortgage-free, you’ve likely considered refinancing into a shorter term loan. Repaying your loan over a shorter term will enable you to focus on other goals such as saving for retirement, or your child’s future education. Of course there’s a cost to shortening the length of the loan, the obvious one is the increased monthly payment. Although your payments will increase from this type of refinance, you’ll be making lower interest payments over the course of the loan. If you don’t like the idea of paying closing costs to shorten the term, you can certainly pay more money to your lender to lower your outstanding mortgage balance. This doesn’t have to be done on a schedule, feel free to send extra money whenever you have additional funds.
Always monitor your credit!
It’s well-known that credit requirements are much more stringent in 2013, and lending standards are only expected to tighten in the near future. Don’t think you will qualify for a refinance or secure a low interest rate with a poor credit score! You should be treating your credit like a valuable asset, this is indeed how creditors identify you and your willingness to repay a debt on time. Most lenders will refuse a refinance if you have any 30-day late payments on your credit report within the last 12 months. With a credit score of 720+, you can anticipate the favorable terms and the lowest interest rate available – although having a credit score above 680 can still land you a sweet deal.
Make sure you take the time to review your credit report before applying for a mortgage. In early 2013, reports shown that nearly 20% of all consumers had at least one error on their credit profile, don’t let yourself be another statistic! Monitor your credit score regularly and make sure all debts that are being reported are truly yours. Check for inaccurate balances or late payments that should not be there. Being diligent will go a long ways when seeking to secure a refi.
Negative equity? No worries!
Have you been hesitant to pursue a refinance because your home’s value has declined and you no longer have equity? Well if you’ve done some research on this subject within the past two years, you should be aware of the government’s Home Affordable Refinance Program (HARP) for underwater homeowners.
HARP was first established with strict loan-to-value eligibility requirements, but with the inception of HARP 2.0 the program is now available to any mortgage backed by Fannie Mae or Freddie Mac – regardless how far underwater you are. Unfortunately, for about half of all underwater mortgages HARP is out of reach due to the fact it’s currently only available for loans owned by Fannie Mae or Freddie Mac. Keep on the lookout for the new and improved HARP 3.0! We’ve been anticipating the new revisions for this program for over a year now. If approved, HARP will be available to ALL mortgages, not just those backed by the mortgage giants.
Recently pre-approved for a refinance? Wait until closing to touch your credit
Mortgage lenders are generally required to order a second credit report prior to closing a loan. You’ll want to make sure that your credit score remains solid after the pre-approval. Don’t charge up credit cards or open new accounts while the loan processes. If you were on the edge of being declined when you first applied, your refinance could be turned down at the last minute if your debt-to-income ratio or credit score adjusts.