Anyone who bought their home using a fixed-rate mortgage probably knows that the market has its ups and downs, whereas they’re not expected to pay anything but their original, fixed mortgage rate. If the interest rate goes up at a given time, you know you’ve been wise since your rate remains lower. There are a lot more things to think about such as the pros and cons of refinancing, though, if the market rate decreases.
First, keep in mind the percentage point break. How much lower is the current interest rate than what you’re paying on your current mortgage? Despite what may seem like an attractively lower rate, the general rule is you should only consider refinancing when your mortgage rate is at least one full percentage point higher than current market rates.
Transactions fees charged by your lender are also important to note. When you choose to refinance, these are the fees you will be charged. Depending on what the fees actually are, you may end up losing more than you would have gained during the refinance process. Before refinancing, definitely take this into consideration.
It is also important to realize that your application to refinance may be rejected. It really isn’t such an uncommon thing, since over 50% of Americans are seeking refinancing options at the moment. In the first six months of 2008 alone, well beyond 50% of applications to refinance weren’t even approved.
Another factor to consider logically follows. Certain criteria need to be met before you can refinance in the first place. In order to get the best refinance rates, you need to have a strong credit score. Even a strong score like 720 might not get you the rate you’re looking for in the refinancing process. You’ll probably need a 740 or higher if you want to maximize on a low rate.
Lastly, shop around. A rate quoted to you by one lender may not be your best option. The only way to know is to visit many lenders and do your research. This will take some time on your part, but it is ultimately the best way to net yourself the lowest rate possible. This is what you were seeking in the first place, so it will undoubtedly be worth the effort.
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