Higher interest rates are on the horizon. Like many homeowners, you may be assuming that you are out of luck in terms of refinancing to get a better interest rate for your home loan. While time is running out, it isn’t too late just yet. Conventional wisdom dictates that rates are unlikely to rise about 5 percent in 2017, so there is still time to take advantage of low rates while they’re still around. Increase the odds of securing a lower rate through refinancing by keeping these tips in mind:
1. Act Fast
Although interest rates aren’t expected to shoot up dramatically–as mentioned before, they’re expected to remain below 5 percent through the end of the year–they are, indeed, going to start rising. The odds of them getting lower than they are now are extremely low, so the sooner you act, the better off you will be. Start researching what kinds of rates you may qualify for now to get the ball rolling.
2. Check Your Credit Score
Pull up your credit score and reports to ensure that your credit is in good standing. If it isn’t, the odds of you getting anything close to a competitive interest rate will be abysmally slim. Don’t get discouraged, though. It is sometimes possible to improve a score significantly even in just a few months. If there are errors on your reports, dispute them. Pay your bills on time, and make sure that your credit utilization is low.
3. Be Ready
While the long-term trend is for interest rates to climb, it is still conceivable that they could dip again here and there. Get your ducks in a row now so that you don’t miss out on such an opportunity. If you’re not already in the queue to refinance when rates drop, you’ll be out of luck. Remember: You are under no obligation to lock in a rate when you apply; you can bide your time. Get your paperwork in order, save up some money for upfront refinancing fees and polish up your credit so that you can jump when the opportunity presents itself.
4. Consider a Cash-Out Refinance
Home values are rising right along with interest rates. Depending on your situation, you may be able to take advantage of this by taking a cash-out refinance. Should you go this route, however, make sure to use the money that you pull out wisely. Ideally, it should be used to bolster the equity of your home, so renovations and improvements are good. Additional options include a home equity line of credit or a home equity loan.
5. Refinance to a Shorter Term
If at all possible, consider refinancing into a shorter term loan. Rates for 15-year mortgages and other shorter term mortgages tend to be lower than those for standard 30-year loans, so you will be able to save considerable money on interest charges. Your monthly payments will most likely increase, but you will save a lot over the long haul. Remember, however, that if rates keep climbing, your savings will drop.
6. Refinance to an ARM
Counterintuitive though it may be, refinancing to an adjustable-rate mortgage sometimes makes sense when interest rates are poised to rise. That is because ARMs usually feature lower interest rates initially. This option is particularly viable if you don’t plan to stay in the house beyond the initial, fixed term of the loan.
7. Refinance Out of a HELOC or ARM
If you currently have an ARM or a HELOC that has an adjustable rate, you might consider refinancing into a new loan to lock in today’s rates, which are lower than they will be soon. In the case of a HELOC, this is an especially good move if you are about to enter the recast period where you can no longer pay interest only. You may be able to switch your HELOC to a fixed-rate loan, but the rate may be higher. Another option is to refinance into a fixed-rate home equity loan. You might also refinance your first mortgage and then roll the second into it, but it only makes sense if the rate is low enough.
Before closing on your refinanced loan, you will have the opportunity to pay points to secure a lower interest rate. One point equals 1 percent of the loan amount, but you won’t always have the option to pay in full points. That depends on market conditions. If the market is sable, you should be able to buy down your rate without paying too much. If it’s volatile, however, you’ll probably have to part with more cash.
As you can see, you’re not out of luck if you want to refinance your mortgage for a lower rate. Still, don’t put it off for too long. Before you know it, rates will be up, and you will have missed your chance.