Mortgage Rates Are at an All-Time Low. Here’s How You Can Refinance for Your Dream Home.
You’re probably already aware of how low mortgage rates have been over this past year—but you might be wondering if they’ll stay that way. While average mortgage rates have recently climbed back over 3% for the first time since April, it’s still a great time to refinance. Even with the recent increases, mortgage rates are still at record-breaking lows. Keep reading for more information!
Low Mortgage Rates—How Can You Benefit?
According to Black Knight, a mortgage analytics firm, right now there are 11.8 million borrowers who could lower their interest rate by at least 0.75%. The average borrower could reduce their monthly payment by $284—and, for some, even bigger savings are possible. But how do you know if you’re one of those lucky borrowers? Low rates don’t necessarily mean that refinancing your home loan is the right move. Here’s how you can tell.
As a general rule, if your mortgage rate is 4.14% or above, you should consider trying to refinance. While mortgage rates are continuing to rise, they aren’t expected to spike anytime soon. Refinancing is a good idea for you if you can reduce your interest rate by at least 0.5%—and an even better idea if you can reduce your interest rate by more than that!
Here’s an example to help put things in concrete terms:
Let’s say you have a $300,000 balance on your mortgage. Your current interest rate is 3.75% but, through refinancing, you’re able to reduce it to 3.25%. You’re looking at an extra $84 in your pocket every month—$1,008 every year. That money could go straight to savings, toward remodels to boost your home’s value, or for a fun family vacation!
When to Refinance Your Mortgage
In addition to being able to reduce your interest rates, there are some other factors you should consider when deciding whether or not to refinance. Answer the following questions to get a better idea of where you stand.
If you don’t plan on staying in your current home for much longer, refinancing might not be a great idea. You’ll have to pay closing costs—so, if you’re moving soon, you might not break even.
How Much Equity Do You Have in Your Home?
As a general rule, you need at least 20% equity in your home to qualify for a mortgage refinance.
What’s Your Debt-to-Income Ratio?
When it comes to DTI, lower is always better! However, there are lenders who will work with a DTI as high as 43%. FHA loans will typically work with up to 50%.
How’s Your Credit Score?
When was the last time you checked your credit score? When you bought your current home? Make sure you know where you stand before attempting to refinance! You’ll need a credit score of at least 620 to qualify with most lenders. Trying to get the best rates possible? You’ll need a score of at least 740.
Your Dream Home Could Be More Affordable Than Ever
So, if you’ve been wondering whether or not you missed the refinancing boat, we’re happy to report that you haven’t! You might not get as good of a rate as you would have in April, but mortgage rates are still at historic lows—and that could mean serious savings.