If you purchased your home with a fixed-rate mortgage, you probably realize the market is bound to fluctuate while your monthly mortgage payment will not. If the market’s interest rate increases, you’ve made a good deal. If it decreases, however, you have some things to consider in terms of whether you should refinance to lock in the lower rate.
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.
That leads into another factor to consider. In order to refinance you need to meet certain criteria. Your credit score will often determine the best rates you can obtain through refinancing. While 720 is still considered by many to be a strong FICO score, it may not be good enough to get you the rate you truly want when refinancing. The goal would be to have a 740 or higher in order to get those low rates you’re looking for.
Lastly, don’t just go with the first offer you’re quoted. One lender may not quote you the best rate. You can only be truly certain by discussing your options with a lot of lenders and doing your own research, as well. You might think this takes too much time, but if you want the lowest rate possible, this is what you need to do. Since this is what you really were looking for anyway, believe that the effort is worth it.
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