Is Summer a Good Time to Refinance?
Summer is the time of year when the real estate business is at its busiest because this is when buyers flood the market looking for new homes. But what about refinancing your mortgage? Is this summer a good time to refinance your mortgage?
The truth is – it depends.
There are several factors you should consider before pulling the trigger on your refinance, but one of the most important is your current interest rate. With rates rising, not every homeowner will see the savings they might expect from refinancing, but there are still a lot who will.
Is Your Interest Rate 6.30% or Higher?
At the time of this writing, according to Freddie Mac the current average mortgage rate for a 30-year fixed-rate loan is 5.30%. So, unless your current interest rate is 6.30% or higher, then refinancing your mortgage may not result in the savings you need. In fact, the cost of refinancing may not even be worth it if you aren’t planning on staying in the home for longer than five years because you most likely won’t reach the breakeven point should you sell prior to that.
That said, if you can refinance your mortgage into a shorter-term loan, then you may see vastly improved savings and pay your loan off sooner. The average rate on a 15-year fixed-rate mortgage has recently moved down to 4.58%.
Is Your Credit Score 620 or Higher?
Most mortgage lenders out there will require you to have a credit score of at least 620 to qualify for a mortgage refinance. But if you want to get the lowest mortgage rate, and that’s usually the case with refinancers, then you’ll need at least 740.
Your credit score is even more important when you’re refinancing because if your credit is lower today than it was when you took out your current mortgage, then you most likely won’t qualify for a lower interest rate than what you’re currently paying.
Is Your Debt-to-Income Ratio Lower Than 50 Percent?
You may find a lender willing to refinance your mortgage if you have a debt-to-income (DTI) ratio of 50 percent, but any higher and you can probably forget it. And it would have to be an FHA loan. Most lenders, however, and especially those who process conventional home loans, prefer their refinance applicants to have DTIs of no higher than 43 percent.
Do You Have 20 Percent or Higher Equity in Your Home?
To qualify for a refinance, most lenders require you to have at least 20 percent equity in your home. If your home has less than that, you will be hard-pressed to find a lender willing to refinance your loan. That’s not to say that it is impossible. Your odds are just greatly reduced.
Don’t Try to Predict the Market
The first thing you need to know about the housing market is that it is unpredictable. Interest rates may trend one way for weeks and then suddenly change direction. Or they may simply stay on the trajectory they’re on for a while longer. If you try to predict what the market is going to do and make your refinance decision on that, then you are playing a risky game and could wind up losing a golden opportunity to save money.
If you are thinking about refinancing your home loan, and you meet the qualifications listed above, then you may want to do it sooner than later. You never know what the market will do, but right now, rates are rising and they’re rising faster than even the most experienced experts anticipated.
