Now may be the time to refinance. If you have a great credit score, you will have the ability to obtain the best and lowest refinance rates out there, but you may need equity in your home to refinance.
Q: I purchased a house in March and got a 30-year fixed-rate mortgage 4.85 percent. I put 20 percent down and owe $202,000. When we purchased our home, my credit score was 840s and my partner’s was just below that.
Can we get a cheaper rate to refinance? Thanks for your help.
A: It’s amazing to see how far interest rates have fallen in the past six months. When you bought your property, you probably thought that getting a long-term mortgage for less than 5 percent was a great deal – and it was.
But in October, 30-year mortgage rates fell to less than 4 percent for the first time in history. While these low interest rates are a reflection of our troubled economy (and the high unemployment rate that goes along with it), some folks are able to take advantage.
You have a couple of options: You can shop around for a cheaper 30-year loan. But a better move might be to look for a great 15-year mortgage deal, if you can handle the higher monthly payments.
For homeowners with great or great credit and a high credit score, at least 20 percent equity in the property and enough cash on hand to satisfy the lender, 15-year fixed-rate mortgages are being offered around 3.25 percent (or lower) as we went to press. This is an excellent long-term rate that will allow you to pay virtually no interest and get your home paid off in 15 years. Most of what you pay will be principal, not interest.
It’s great that your credit score is so high, because if you had poor credit or a low credit score, you’d have trouble finding a lender to refinance your loan or your interest rate on your home mortgage might be a higher.
If you can swing it, you might even look at a 10-year loan. These are currently priced around 3 percent (as we went to press) or can be had for even a little less. I’d stay away from the variable rate mortgages. Once the economy improves, these mortgage rates will be gone forever. Take advantage now.
I’d start shopping around with local lenders as well as the big banks. You should plan on speaking with loan officers at four or five different types of companies: Mega banks, regional banks, local banks, credit unions, local mortgage brokers and online lenders.
Each of these companies offers something different, and until you compare their loan programs on an apples-to-apples basis, you won’t be able to know which one is best for you.
You will want to determine the costs of refinancing with any lender you decide to go with. If you find a low cost option or even a refinance option that would not cost you anything, refinancing your loan from a couple of months ago would be a great thing to do. A refi under these circumstances would be great if you can keep the costs low.