With mortgage loan interest rates at historic lows, you may be curious about whether you can refinance your mortgage. As rumors swirl about the Fed raising rates, you may have a limited amount of time to take advantage of the lowest interest rates.
While mortgage loan refinancing isn’t the right move in every situation, many homeowners could save a significant amount of money by going through the process of refinancing their mortgage loans.
What Is Mortgage Loan Refinancing?
When you refinance your mortgage loan, you go through a new approval process and take out a new home loan. The new loan pays off your previous loan. With mortgage refinancing, the goal is to pay less interest, make lower monthly payments, or shorten the amount of time that you’ll make mortgage payments.
Many people choose a cash-out refinance, which provides a lump-sum payment of cash to the borrower. Whether you can qualify for this type of refinance loan depends on the amount of equity you have in your home.
How Soon Can You Refinance a House?
Depending on your lender’s rules, you may be able to refinance your home just a few months after you get your original mortgage loan. However, when you get a home loan, you pay closing costs. With a mortgage refinance, you’ll also have closing costs.
Even with closing costs, it may be worth it to refinance your mortgage. A loan officer can help you do the math and decide if refinancing your home loan will help you save money in the long run, even with closing costs.
If your credit score has recently improved, you may be able to qualify for a lower interest rate, which could help reduce your monthly house payments and save you money over the life of your loan.
If your home value went up significantly, even if your mortgage loan is only a few months old, you may have enough equity to facilitate refinancing at a lower rate as well. Doing so may help you eliminate your private mortgage insurance premiums if you now have at least 20% equity in your home.
What Factors Influence Whether I Should Refinance My Home?
There’s no one-size-fits-all answer to this question. Rather, it’s important to consider how much equity you have in your home, what interest rate you can qualify for, and whether you plan to stay in your home for at least another five to ten years.
To make sure it’s worth it to refinance your mortgage, share your financial goals with your loan officer. Do you want to reduce your monthly payments to free up money in your budget for other things? Are you looking for long-term savings in the form of lower interest rates? Do you want to shorten the term of your loan so you pay off your home earlier? Your loan officer can help you decide whether refinancing is the right choice. They can also recommend a loan type that may best line up with your goals.
In fact, 15-year refinanced mortgages are growing in popularity. In many cases, the monthly payment goes up just a bit, but you’ll enjoy 15 fewer years of making a house payment. In some cases, it may make sense to skip the refinance process and make larger monthly payments to shorten the amount of time you make house payments. Your loan officer can help you try out different scenarios to see which is the best fit.
What to Consider Before Refinancing Home Loans
There are some issues to consider that are outside of your control as you think about whether to refinance your mortgage loan.
Current Mortgage Loan Refinancing Rates
Rates have been historically low since the start of the pandemic in 2020. However, industry experts say that rates may increase steadily throughout 2022.
The Federal Housing Finance Agency recently announced that they will no longer add a 0.5% fee on many refinanced home loans, so rates may hold steady a bit longer.
The Current State of the U.S. Economy
While the Federal Reserve doesn’t directly control mortgage loan interest rates, their decision to increase interest rates on Treasuries may affect home loan interest rates. As interest rates on Treasuries rise, the cost of borrowing money also rises for banks and other lenders. They pass those costs on to borrowers in the form of higher interest rates on mortgage loans.
How Long You Want to Stay in Your Home
If you plan on moving in the next few years, the closing costs associated with refinancing your mortgage may not be worth it. If you plan to stay in your home for at least another four to five years, you may be able to reap the financial benefits of refinancing your loan, depending on a number of other factors. Do some math and figure out whether you can lower your payment or save enough interest to recoup your closing costs.
How Long Do You Have to Wait to Refinance?
Even if you just purchased your home, you may be able to refinance if it’s in your best interests. Talk with your lender to find out if they will allow you to refinance your loan. Many homeowners are able to refinance their loan right away, with no waiting period. Some may have to wait just six months.
Your Home Equity
The current housing market is still tight, which tends to drive up prices. You may have more equity in your home than you think. Your home’s equity is the difference between the total outstanding amount of your mortgage loan and your home’s market value. So, if you purchased your home for $300,000 two years ago and owe $280,000, you would have $20,000 equity. If your home’s value has risen to $320,000 over the past two years, you have $40,000 equity. With that amount of equity, refinancing your home may allow you to get your private mortgage insurance payments eliminated, which could save you a considerable amount of money.
If you are curious about a cash-out to refinance, now may be an excellent time to pursue that option.
What’s the Best Way to Refinance Your Mortgage?
When you refinance your mortgage, you’ll have to qualify for the loan based on your credit history, the home’s value, the amount of money you need to borrow, your income and your debts. You’ll file an application and go through underwriting just like you did with your original mortgage loan.
Before you start the process of refinancing your loan, there are a few things you can do to make sure you are in a good position to get the lowest possible interest rate.
Check Your Credit
You can get a free copy of each of your three credit reports at annualfreecreditreport.com. Federal law entitles you to a complete credit report every 12 months. Since credit is an important factor when it’s time to refinance your mortgage, it’s crucial to look through your reports and identify any potential errors.
Optimize Your Credit Score
There are a few things you can do to make sure you have the highest possible credit scores. Keep your credit card balances low, make all of your payments on loans and credit cards on time, and talk with your loan officer about other ways you could quickly increase your credit score.
If you think refinancing your mortgage may be a money-saving move, you plan to stay in your house for the next few years, and your credit is in good shape, explore your options for a low-interest home refinance loan today.
Low-Interest Home Refinance Loans
Check out our great low rates. Our Accelerator Mortgage program makes getting your home loan refinanced quick and easy. Shorter terms allow our customers who want to pay off their mortgages to reach their financial goals faster.
With the Accelerator Mortgage program, there are no document preparation fees, no flood certification fees, no recording fees, no appraisal fees*, no credit report fee and no title insurance fee*.
Talk to a Charter Oak Credit Union loan officer today to learn more about how you can refinance your mortgage while rates are low.
*Some fees apply for loans greater than $250,000. Loans over $500,000 are subject to a 0.25% increase above the published rate. Charter Oak Federal Credit Union requires escrows for property taxes and if applicable, flood insurance. Borrower is responsible for homeowners insurance and pre-paid interest.