With mortgage rates on the rise, refinancing may seem like a risky proposition. But if you opted for an adjustable mortgage, your rates are likely higher than today’s rate.
Refinancing is different than getting a mortgage for the first time. If you’ve been paying consistently, you’ve already established a good track record that will make it easier to get a new loan.
Because of the constant demand for real estate in the Nation’s Capital, you’ll find that even with the ups and downs of the real estate market your home’s value is most likely higher than when you purchased, especially if you’ve owned your home for decades or more.
The following information will help you understand what you need to know about refinancing.
Know Why You’re Refinancing
Before learning the how, you need to have a why. Why do you want a new loan? This may affect what you can borrow and the programs available to you.
Also consider the fact that refinancing means starting the 30-year mortgage repayment clock over again. While that lower monthly payment may be tempting, if you’re not far from paying off your loan can you afford to add another 30 years of debt?
Common reasons to refinance include:
- Debt consolidation
- Conversion to a rental property
- Change in income
- Preparation for retirement
Research Refinance Rates and Scenarios
Not all lenders are created equal. While your local bank or credit union is the logical place to start, don’t forget about smaller companies that can provide more personal service. The competitiveness of the DC market works to your advantage, and you’ll find it easy to find lenders to help.
In addition to comparing rates, use a refinance calculator to look at different scenarios and find what works best for your situation.
Check and Repair Your Credit
Like mortgage lenders, getting refinanced is largely dependent on your credit. Lenders use an average of your credit score from the three major credit bureaus when determining your ability to repay a loan.
Start by getting a copy of your credit report from Experian, Equifax and TransUnion. Examine them closely for any errors and immediately dispute every inaccuracy. This includes closed accounts, inaccurate balances and unknown charges.
It will take some time to get the information back, so get your reports fast. If you want your score, you’ll need to pay for it.
When it comes to paying old debt, start with the newest debt first. Obligations that have been inactive for a long time will become active again if you begin making payments.
Know Your Options
Depending on your reasons for refinancing, there may be programs available to help. The HARP program deadline expired on December 31, 2016, but your local or state government may still have help available if you’re struggling to make your payments. It’s unclear if the DC HomeSaver program will still be available in 2017.
If your goal is to do some much needed repair on your home, many of the programs available to homebuyers also allow you to refinance your current mortgage. The FHA’s 203(k) loan and Fannie Mae HomeStyle Renovation program both provide funds for construction.
Contact a Mortgage Broker
After determining the reason for your refinance, repairing your credit, checking rates and exploring your options, choose a mortgage broker or lender that will work for you. Brokers offer a wider range of products from a variety of lenders, so if you’re having trouble, they may be the best option.
Don’t let changing mortgage rates deter you from refinancing if you have a strong reason for doing so. With a little bit of research and the right lender, good deals are still around.