Waiting For Refinance Rates to Go Down? Why Refinancing Now Saves Money Now

Refinance rates have undergone so many changes over the last two years that it can occasionally be overwhelming. 

After a peak level of 7.08% back on Nov. 10 of last year, the rates have been trending downward—albeit slowly and with a few hiccups along the way.  

Homebuyers who purchased a new adjustable-rate mortgage (ARM) before this recent rise in rates are now beginning to wonder when they might be able to refinance safely. 

Are you waiting for refinance rates to go down? Keep reading to find out: 

• How to lower your refinancing costs 
• Why refinancing right now can save you money

How does refinancing work and how can it save me money?

Refinancing involves trading your existing loan for a new one. 

Depending on the interest rate, your financial state, and your financial goals, refinancing could help you:

• Decrease your monthly payments
• Decrease the amount of interest you pay throughout the loan
• Pay off your loan sooner
• Access your equity to take out money

While refinancing has the potential to improve your financial future, you should first consider your current credit score and financial condition. 

Has your credit score improved since you got the initial loan? Are your income and savings steady? If you’re dealing with personal financial challenges, will your financial situation enable you to secure a favorable rate and terms on a new loan?

Let’s look at how refinancing can save you money in greater detail.

The top 5 ways refinancing could save you money

While refinancing isn’t beneficial for every situation, the following are the top five ways in which refinancing can save you money. 

Reduced interest rate

Refinancing to a lower interest rate can reduce the overall interest paid on the loan. 

You may have had a low, fixed introductory rate at the start of your current mortgage, but if you can refinance to a low rate before the variable rate kicks in, it can save you thousands over the life of the loan. 

Adjusting your repayment period

A conventional mortgage’s most typical repayment periods (also called loan terms) are 15, 20, or 30 years. If you opt for a longer repayment term, your monthly payment will likely be reduced significantly. 

However, it also means that you’ll be paying off the loan with interest for a longer period.

Reducing monthly payment amounts

If your financial situation worsens while you are still paying off your mortgage, you might consider refinancing to obtain a lower monthly payment. This adjustment might also give you more wiggle room by freeing up your cash.

However, this strategy is unlikely to save you money in the long run, but it can make your mortgage payments more manageable while you navigate your current difficulties. 

Eliminating mortgage insurance

Homeowners can remove mortgage insurance from the equation if they meet certain criteria. This criteria generally includes a loan-to-value (LTV) ratio at or below 80%. 

Additionally, homeowners may need a certain number of consecutive payments made on the loan. After the criteria are met, mortgage insurance payments can frequently be dropped, creating average savings of $2,200 annually.

Utilizing your home equity

Using the equity you’ve paid into your home, you can pay off credit cards, personal loans, and other debt with a higher interest rate. Consolidating your debt into a mortgage with a more affordable interest rate will save you money on interest. 

Tips for reducing the cost of refinancing 

When refinancing a mortgage, most homeowners want to save money by securing a lower interest rate and thus reducing their monthly payments. But some borrowers are hesitant to pay the new closing costs or other costs associated with refinancing. 

However, there are ways to reduce refinancing costs. The following are six strategies to make refinancing more economical for the short or long term. 

Closing costs and paying points

First, a borrower should inquire if the mortgage lender or broker offers the chance of paying for costs or discount points. 

Discount points can frequently lower the interest rate. Sometimes a lender may use the term points to refer to any fee assessed before the loan is finalized. Your lender should explain in detail how their version of points is utilized and how it might affect your rate. 

Employing discount points also means a larger portion of your mortgage payment will go toward the principal amount. If so, this could substantially reduce the amount you’ll pay for your home. 

Elevating your credit rating

A lower credit score usually means a higher interest rate and—if you use them—having to spend more discount points to reduce it. 

That’s why taking the time and necessary steps to improve your credit score makes sense. What costs you might incur in lowering your debt levels and improving your score might easily be repaid through a better refinancing rate. 

A credit score of 740 is usually necessary for the best mortgage rates for most lenders.

You can review your credit score with a free copy from different credit agencies to check and correct any inaccuracies. Furthermore, you may be able to improve your score by up to 70-80 points if you pay off any high credit card balances.

Another way to improve your credit score while refinancing is to refrain from establishing new accounts.

Appraising your home

A professional assessment of your property may not be necessary for every mortgage refinance lender, but they are not uncommon either. 

An opportunity to save money might arise if the previous assessment of your home is undervalued—for example, due to renovations or an increase in the market value of your home. 

If you have completed significant renovations or upgrades, your home value might have increased, which would change your LTV.     

A more current appraisal of your home could mean reducing your LTV, which could translate into eliminating private mortgage insurance. You might also achieve a lower interest rate and a lower monthly payment.

Conversely, if you’re in the middle of renovations, ensure all remodeling is finished before the appraiser arrives to maximize the home’s value. Refinancing applications have even been refused or delayed due to unfinished work like incomplete kitchens or bathrooms.

Get better refinancing rates with Homefinity

Don’t wait six months for better refinancing rates—Homefinity can show you how to save money through refinancing. 

We’ve done plenty of mortgages and refinancing for a wide range of clients with a wide range of unique circumstances. We want to be there for you. 

Refinancing can be simplified. Connect with one of Homefinity’s loan officers today to find out more.

Photo by RODNAE Productions