Refinance before Window of Opportunity Closes

Many people were kicking themselves last year because they thought they had missed the opportunity to refinance into historically low rates. What no one realized, however, was that mortgage rates would continue to drop, continue to make history, and continue to give people who couldn’t close the refinancing window a chance to refinance into an even better mortgage rate. If you’ve been on the sidelines, it may be time to step out onto the playing field, and make your move.

If you’re ready to take action, here are some tips for success.

Time isn’t on your side

The refinancing process is arduous. Your financial life will be intensely scrutinized, because lenders have stricter standards now than before the mortgage crisis. To take advantage of these low rates, your credit should be sparkling, or at least bubbling above the high 600s. Lenders want to see job security and a steady income stream. Self-employed borrowers will need to show two, or maybe three, years of income documentation.

Tighter scrutiny means that closing the loan will take time. Because interest rates could begin an upward climb at any moment, the sooner you act, the better chance you have of capturing these phenomenal rates.

Value lessons

Home values continue to be depressed, so it’s important to make sure that you have enough equity in your home to qualify for a refinance. If your property is worth less than your current mortgage, shrug your shoulders, and accept the fact that a refinance isn’t in the cards right now.

If your mortgage is less than your home’s value, hold your head up high and begin the application process. If they’re about equal, it’s worth a try, although you may need a mortgage broker to help navigate through the maze.

The best way to discover your home’s value is to hire a qualified appraiser, but it may cost several hundreds of dollars, and the whole purpose of a refinance is to save money. There are two alternatives. Ask a local realtor for a list of recently sold comparable homes in your area. Or check with your assessor’s office, either on-line or in person, as they keep listings of your home’s value for tax purposes. No matter how you locate your numbers, it may be different from the actual bank appraisal you’ll receive, but at least it’s a starting point.

Is refinancing worth the effort?

You’ll be putting lots of effort and expense into this refinance, so make sure it’s worth it financially. According to the Federal Reserve, refinance closing costs can run you between 3% and 6%, which translates to a maximum of $18,000 on a $300,000 mortgage. Will you be in the house long enough to recoup the amount you’ll pay to close on the savings you’ll get from the lower interest rate?

Opportunity doesn’t knock all that often in the refinance market. The mortgage window is currently wide open, and the fresh air of low rates is blowing in, so act before it closes.