5 Things You Should Know About Refinancing

Anyone who bought their home using a fixed-rate mortgage probably knows that the market has its ups and downs, whereas they’re not expected to pay anything but their original, fixed mortgage rate. If the interest rate goes up at a given time, you know you’ve been wise since your rate remains lower. There are a lot more things to think about such as the pros and cons of refinancing, though, if the market rate decreases.

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.

Next, take a look at what your lender would charge you in transactions fees. These are the fees you will be charged to actually go through with the refinance in the first place. If the fees are high enough, you may lose all or most of the benefit you would have gained in refinancing anyway. It is definitely something to take into consideration.

Keep in mind also that you may be rejected. In fact, it’s not uncommon when more than half of Americans are looking to refinance right now. In the first half of 2008, for example, a significant percentage above half of refinancing applications were not 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, shop around. A rate quoted to you by one lender may not be your best option. The only way to know is to visit many lenders and do your research. This will take some time on your part, but it is ultimately the best way to net yourself the lowest rate possible. This is what you were seeking in the first place, so it will undoubtedly be worth the effort.

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