Do you want to refinance but are wondering about the current mortgage interest rate environment? Don’t worry too much: You still have time to get a good deal. While rates have inched up since one year ago, refinance rates are still quite low and likely will not go above 5% in 2017, according to many experts.
But regardless of what the rates are right now, here are some tips to shop for the best mortgage refinance rates in a generally rising market:
#1 Move Soon
We have to keep things in perspective; 30 years ago interest rates were 15%. Now THAT is a high rate! Current rates are low and will stay low historically this year and next year.
That said, there is no doubt that refinance rates will steadily trend upward in the next two years. So, if you are on the edge of refinancing, know that you will likely pay more in a year than today. We advise if you can afford to refinance today in terms of closing costs and fees, you pull the trigger and do it. Mortgage refinance rates will be higher by the end of this year, as the Fed has indicated it will hike rates again this year.
#2 Be Ready If Rates Drop
We advise turning in your refinance application as soon as you can because rates are going up. But if there are signs that rates will drop, there will be a flood of refinance applications.
Experts say this is one of the biggest mistakes people make when they refinance a mortgage: If your application is not in the pipeline when rates drop, you may miss the drop.
If you are not required to lock in your rate when you refinance, you may want to let the rate float.
#3 Keep Your Credit Score in Shape
Pulling the trigger on a refinance may not be worth it if your credit score is below par. Your credit score will play a major role in the rate you get. Just because you may see very low rates does not mean you will qualify for them.
However, you can increase your score in a few months if you pay off credit cards. Some people will see a 100 point rise in score if they pay off several credit cards in a short period of time.
Experts note that rates will not rise by a point in the next three months. You should take time now to get your credit score up to where you can qualify for the best mortgage refinance rate, whatever that is.
#4 Home Prices Are Rising
One of the benefits of rising rates is that home prices generally are rising too. This is what usually happens in a growing economy. So now is the time to tap your home equity with a cash out refinance. If you do pull out cash, experts advise that you spend it on things that will pay you back. Some of these things include a smart home remodel, or investing in real estate investments for cash flow.
#5 Get an ARM
Refinancing into an ARM in a rising economy can be logical; these rates will come in substantially lower than a fixed rate. They are very useful if you are fairly sure that you will not stay in the home longer than the loan term – such as five or seven years.
#6 Refinance To a 15 Year Loan
Refinancing into a 15 year mortgage can make sense in two ways. The refinance rate is lower than the 30 year loan, and the shorter term means you will save over the loan’s life in lower interest charges.
You will pay a few hundred dollars more each month on your mortgage, but you will pay much less in interest charges than a 30 year loan.
#7 Pay Mortgage Points
Before you close on your refinance, consider paying points on the mortgage. This means you are paying money upfront to lower your rate over the loan term. This lowers your rate for the entire loan. If you can handle the out of pocket expense, experts advise paying points.
One point is 1% of the amount of the loan. The amount of points you can pay out depends upon the current market refinance rates. If the market is quite volatile, you will need to pay more to pay down your rate. If it is a stable market, you will pay less.
#8 Refi from an ARM or HELOC
If you are worried about rising rates hitting your pocketbook on your adjustable rate mortgage or on your home equity line of credit or (HELOC), you may want to refinance out of your ARM. The rate will be higher usually, but at least you know for years and years what your payment will be.
If you have a HELOC, beware when the draw period ends and you cannot just pay loan interest anymore. As rates are going up, experts advise that you look closely at your loan options.
You may want to call your lender to see if you can move your HELOC into a fixed rate. The rate may go up, but you will know the rate cannot change. You also can refinance your first mortgage and wrap the second mortgage into it.
The Bottom Line
A rising economy and market brings opportunities and challenges. The upside is that high rates mean generally rising real estate prices and incomes. This helps your bottom line as a home owner. But on the downside, you do possibly face higher interest rates and more volatility in your payments if you are not in a fixed rate loan.
By reviewing our tips above, you will have a better idea of what to do about your refinance in a rising interest rate market.