With refinancing rates remaining low, now may be the time to consider refinancing your mortgage. Current rates are averaging around 2.80% (July 31, 2021). It might be a good time to evaluate your current mortgage.1
When Should You Consider Refinancing?
There are many reasons to consider refinancing your current home. If you have home improvement projects you have been putting off, you may want to take advantage of the low-interest rates to get a loan re-finance and take some cash out by borrowing against your home's equity to get the funds you need.1
If your mortgage rate is 3.80% or above, you might be able to lower your monthly mortgage rate to pay less interest over the life of your mortgage. If you currently have a high-interest rate mortgage and need to take out cash, you might qualify for a low enough rate to get the cash you need while maintaining a similar level of mortgage payment.1
Generally speaking, if you save 0.5% to 1% off your interest rate, refinancing your mortgage may be a sound idea.2
Things to Consider
When deciding whether to refinance or not, there are a few things to consider. The first is your credit score. While you might qualify for a mortgage or refinance with a credit score as low as 620, you may need a credit score of 740 or higher to take advantage of the lowest interest rates.1
You may also need to consider your debt-to-income ratio or DTI. When looking for a conventional loan refinance, you may need a DTI ratio of 43% or lower, especially to get the lowest rates.1 Another thing to consider is how long you plan to stay in the home. If you are thinking about moving in a year or two, the savings may not be worth the closing costs of the refinance.2 Finally, you may need to make sure that you have at least 20% equity in your home or more if you plan to take additional funds out.2
If you are considering refinancing, the time to act might be soon. Some economists think that mortgage rates could rise in the future.1
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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1 Is Now A Good Time to Refinance Your Mortgage?, Money, https://money.com/is-now-a-good-time-to-refinance/
2 When to Refinance a Mortgage: Is Now a Good Time?, Nerd Wallet, https://www.nerdwallet.com/article/mortgages/mortgage-refinancing-time