Every time rates dip down toward 5% means another week of opportunity for anyone who has not yet looked into refinancing their mortgage.
Refinance Checklist
To help with the decision, here's a quick mortgage refinancing checklist:
- Is your mortgage over a year old? An older mortgage doesn't necessarily mean you should refinance, but the steep drop in mortgage rates over the past year means that older mortgages are more likely to be at rates much higher than today's mortgage rates. So, unless you got your mortgage within the past year, it is worth at least doing a rate comparison.
- Are today's mortgage rates low enough to save you money? Suppose you find that today's mortgage rates are lower than your current rate. At what point does it become worth refinancing? Use a mortgage calculator to answer that question. A good mortgage calculator should allow you to factor in closing costs and should show the effect of refinancing in terms of both monthly payments and total interest paid over the life of the loan. A side-by-side comparison of these factors between your current loan and a loan at today's mortgage rates should answer this question for you.
- Is your credit good enough to merit refinancing? There is a potential catch to refinancing if you have credit problems. Today's tighter lending standards may make it difficult to qualify for refinancing. However, your existing lender might be willing to at least discuss it, because the possibility of refinancing wouldn't represent any more risk to them than keeping you in your current loan. Also, if your credit rating is an impediment, find out what you can do to improve your score so you can have the option of refinancing in the future.
- Do you have equity at today's home prices? Another function of tighter lending standards is the size of the down payment mortgage lenders require these days. If the value of your home has sunk below your remaining mortgage balance, one option to consider is using savings to pay down that balance and regain positive equity in your home. At today's low interest rates, you may be better off in the long run lowering the mortgage rate you pay rather than earning a negligible amount of interest on savings.
If you haven't looked into whether refinancing makes sense, you should do so soon--rates are not staying this low forever.
Richard Barrington
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.
