Ready to Refinance Your Mortgage Before Year’s End? Here’s How
If you are thinking about refinancing your home mortgage in 2023, then traditionally speaking, the best time to do so would be during the last two weeks of the last month in each quarter. So, this means the last two weeks in September and December, since March and June have both already passed.
But while these might be considered by many to be the “best times of year” to refinance, not everybody wants to wait until the end of a quarter to refinance their mortgages. That’s why most experts agree that any time is a great time to refinance – as long as you can secure an interest rate that is at least 1% lower than your current rate (unless you’re refinancing for a reason other than saving money on your monthly mortgage payment).
If the current rate is low enough to allow you to enjoy a sizable savings on your monthly payment, then here’s how to go about getting your mortgage refinanced.
Step 1: Discern Your Reason for Refinancing
Lenders are going to want to know why you want to refinance your home loan and believe it or not, your answer matters. Thus, it is important to have a financial goal in mind before you take the next step.
Determine your true reasons for refinancing, be it to save money every month, to finance a home improvement, to pay debts, or whatever other reason you might have, and be prepared to discuss it with your lender.
Step 2: Check Your Credit
When you refinance your mortgage, you will need to qualify for it just like you did with your original loan. This means that your credit history needs to be clean and your credit score as high as possible. It is recommended to check your credit a few months before you start applying with lenders. This will give you enough time to dispute any errors and clean up any issues on your report that might be bringing your score down.
Step 3: Determine How Much Home Equity You Have
Some lenders may not approve your refinance if your home equity is lower than their requirement threshold, so it is important to find out where you stand in this regard. Find out how much your home is worth and how much you owe on your current mortgage. If your home is valued higher than what you owe, then the difference is how much home equity you have.
For reference, to get the lowest rate and to avoid paying private mortgage insurance (PMI) with your new loan, you want to have at least 20% equity in your home.
Step 4: Organize Your Paperwork
This step may take some time depending on a range of factors, so it is recommended to get started on it before you get too deep into the process of meeting with lenders. You will need all the same documents you needed for your first home loan application, including pay stubs, tax returns, bank statements, broker statements, and a list of your assets and liabilities. Depending on the lenders you compare, you may find out that some might require additional documents.
Step 5: Compare Multiple Lenders
Don’t assume that your current lender will provide you with the best deal on your refinance just because they’re your lender. In many cases, you may be able to get a better deal from a new lender. But to find the best deal, you will be best served to compare multiple lenders and their offers. Aim for getting quotes from at least three different lenders.
Step 6: Get Ready for Your Home’s Appraisal
When you settle on a lender, they will require an updated appraisal to be performed on your home to determine its current market value. When your appraiser arrives to evaluate your home, be sure to point out what improvements, repairs, and additions you made on the home since its last appraisal. This will help you get the highest appraisal possible, which will then help increase your home equity percentage.
Step 7: Prepare for Closing
To secure the lowest interest rate, you will want to bring enough cash with you to closing to cover all your closing costs and associated fees. You can, of course, choose to finance those costs within your new mortgage but doing so could result in you getting a higher interest rate, and it will increase the amount of your loan. So, before you arrive on your closing date, determine which route will make the most financial sense for your unique situation.
Is 2023 the Best Time for You to Refinance Your Mortgage?
Refinancing your home loan is a major financial decision, but it’s one that can pay off big if you can get a much lower interest rate on your new loan, especially if you’re planning to remain in your home for several years.
But as with any financial move, knowing when’s a good time to act is key. Whether 2023 will be a great time to refinance not only depends on your own current financial situation, but also on the general housing climate. For instance, if interest rates start trending upwards again at the time you are thinking about refinancing, then you might want to hold off on making such a major move until the rates start falling.
