Borrowing costs remain high for mortgages, but real estate experts say that this may not last for long. The Federal Reserve kept raising its benchmark last year, but they decided not to move its current rate. Interest rates are expected to climb not just once, but twice this year. These give people an idea about whether they should get a mortgage now or wait for the rates to go down.
Once the rates decrease, those who already have a mortgage could use the opportunity to refinance. Some of them might do it without thinking things through, which usually ends up costing them more in the long run. However, refinancing is also possible while the interest rates are still high.
HOW TO REFINANCE
Technically, refinancing while the mortgage rates are rising can be a bit difficult, but if you know what you’re doing, you have nothing to worry about. Refinancing a mortgage allows you to take a new loan with a more attractive interest rate to pay for your current loan. Once you’ve paid your initial loan, all there’s left to do is meet the monthly payments for the new refinance loan you just took out.
There are many types of refinancing mortgage loans out there, but people usually wait for the rates to go down before applying for one. Refinancing can be very tricky because what some people don’t really know is that the process could end up being more costly than they expected. In order for you to figure out if refinancing is the best option for you, compare the new rates to your old mortgage rates and see if there’s a significant difference.
People choose to refinance for various different reasons, whether it is to lower the monthly payments on their current mortgage or to shorten their amortization period, but these benefits can only be achieved if the new interest is lower than the previous one. You don’t necessarily need to wait for the rates to go down in order to refinance, here are a couple of things that can help you with it while the rates are high.
REFINANCING WITH RATES RISING
It can definitely discourage people to refinance their mortgage with the interest rates so high, but what most people don’t know is that there are certain advantages of refinancing despite having to pay a higher rate. According to the Vice President of Denver’s Mortgage Network, Brian Koss, borrowers’ decisions don’t really have to depend on the interest rates, but instead on how long they think they would hold on to the property.
Every single mortgage comes at an initial rate. These rates are either fixed or can be adjusted. Usually, people choose the adjustable rates since the fixed rates can’t be changed despite any fluctuations in market rates. However, the adjustable mortgage is unpredictable since you have to pay for it every month, but the amount will depend on the current interest rate instead of the rate at the time you applied for the mortgage. Which is why refinancing into a fixed-rate mortgage technically lowers your risk of making higher payments.
Some people think that refinancing is a way to reduce the monthly fees by getting another loan, but what most of them don’t realize is that it can also reduce your equity in the house. People who cash out their equity in order to fund a new loan usually use the money for other things like remodeling the house or paying for a big life expense. However, there are also some who use it to pay off another debt. Real estate experts say that this quarter is a great time for those who wish to refinance since the rates have pretty much stayed the same.
Another important thing to remember if you decide to refinance is to make sure that you have a good credit score. Your FICO score will determine if you are qualified to refinance, and this is even if the rates are low, but having a low credit score will not get your loan application accepted.
The timing and the reason behind refinancing will either benefit or harm your financial life. This is why you need to do further research when it comes to the right time or if it is even the right decision for you. Some real estate experts may give you some points, but lenders will surely pursue you to borrow more money from them, even if it may not exactly help you in the long run.