Determining the opportune time to explore a mortgage refinance

Even with the slight increase in mortgage interest rates this month, mortgage rates are still at historic lows. If you have not yet refinanced your home, now is the time to take advantage of this, before rates climb up even further. Refinancing can lower your monthly payment and provide you relief as a homeowner. Despite all the negative news about the economy, the fact of the matter is, that the economy is slowly repairing itself, and these awesome refinance rates will not last forever. You are looking at a window that is slowly closing, and if you wait to long you may find yourself on the outside looking in before you even know it.

If you take advantage today, you can lower your rates by at least 0.5 percent. That may not seem like much but it adds up over the lifetime of your loan into substantial savings. This makes sense if you have at a minimum of 20 percent equity in our home. it will not make sense however if you plan on moving or selling your home within 3 years, but if you plan on staying in your home for longer than 3 years, a refinance today might be the best option for you.

The good news? Right now some lenders are offering no cost refinances. This means they will waive any upfront fees and out of pocket expenses that are normally associated with refinancing your home. With this type of offer you do not need to pay for the closing costs, which can be quite costly often times in the range of 1.5 percent to 2 percent of your homes loan balance. This would equal between $3,000 to $4,000 on a $200,000 mortgage. I don’t know about you but saving $4k and trimming at least a 0.5 percent of my mortgage sounds mighty appealing. These offers waive the appraisal fee, application fee and the title search fee, as well as the credit check fee.

I should point out that if you agree to pay these costs that they are willing to waive you will get a better interest rate. Nothing in life is free. They offer you a slightly worse rate in exchange for waiving these fees. These fee waivers are meant for those who are utterly cash strapped, and if you have the wiggle room to pay these fees, you will save more money in the long term, as much as 0.5 percent if you pay these fees upfront.

If you have bad credit, refinancing could be difficult, if possible at all. All lenders will rely on your credit score to determine your abilty and likelihood of repaying a loan back in full, and on time, so if your credit score is low this could hamper your efforts. Your credit history consists of:

Past payment history = 35 percent of your credit score
Amount of Debt = 30 percent of your credit score
Length of credit history = 15 percent of your credit score
New accounts = 10 percent of your credit score
Type of credit = 10 percent of your credit score

So if you have a low credit score, you will have to factor in more than just the offered interest rate, if you qualify for a refinance at all. You will have to factor in all the closing costs and fees involved. The no cost closing offers often will not apply to those with poor credit. If after adding up the fees the amount is higher than what you are paying now, a refinance will not make sense. You can opt to get lower monthly payments in the short term, but in the long term you will pay more, with this option the lender will increase the duration of the loan. For example say you had a 30 year loan and paid off 5 years already, the new offer may be a lower monthly payment, but will extend the loan by 5 years to a new 30 year loan. The only option you have to save more money on a refinance if you have poor credit is to work on increasing your credit score, or opting for an extended loan period and paying more money over the lifetime of the loan, in exchange for lower monthly payments.

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