The COVID-19 pandemic has wreaked havoc on the American economy. Small businesses operating in the hospitality and home improvement industries have been especially hurt hard by shutdowns and a significant drop in consumer demand. With all the economic doom and gloom ushered in by the Coronavirus, there is one sliver of good news, and it comes for homeowners.
Mortgage rates are at a near-record low, which the Federal Reserve expects to maintain until the economy begins its eventually rebound.
Since mortgage rates have hit bottom, the time might be right to refinance your home mortgage. Let’s look at six factors to consider before you apply to refinance your home mortgage.
#1 Does It Make Financial Sense?
Just because mortgage rates sit at a near-record low does not mean you have enough financial incentive to refinance a home loan. Remember you have to pay closing costs on a refinanced mortgage, which means the interest rate offered by your lender has to save you more money than the cost of closing the new home loan. A general rule applied by savvy homeowners is to go all-in on refinancing if the reduction in interest is greater than one percent.
#2 Check Your Credit Score
Refinancing a home mortgage requires most of the same steps taken for applying for the initial mortgage. This means your credit score needs to be high enough to warrant refinancing. If you have applied for several lines of credit over the past year, you need to wait until that information becomes a distant memory. You should pay down as much debt as possible to improve your credit utilization ratio. The most important reason to check your credit report is to remove errors that can hurt your score.
Each of the three major credit card reporting bureaus offers one free credit report to consumers per year.
#3 Get Prepared for the Home Appraisal
Most lenders require another appraisal for refinancing a mortgage. The reason is to ensure a house is not worth less than what a homeowner wants to borrow. Although COVID-19 has destroyed sectors of the American economy, home values have remained generally steady during the crisis. Getting prepared for an appraisal means taking care of any home improvement projects that enhance the curb appeal of your home, as well as boosts its functionality.
#4 Comparison Shop for the Best Rate
Shop for a refinanced mortgage like you shop for a new car by comparing the rates offered by different lenders. The best part is it just takes a little bit of research online to get several quotes. Many lenders offer a pre-approved feature that does not negatively impact your credit score. Receiving a pre-approval jump-starts the mortgage refinancing process.
#5 Organize Your Financial Documents
The teetering national economy has made many lenders hesitant to offer new mortgages, much less refinance old ones. Massive job losses and a dramatic decline in personal income contribute to much of the wariness. If you decide to refinance your home, prepare for the application process by organizing all your financial documents. From proof that you are gainfully employed to documents that verify your income, you need to have it together before you start the mortgage refinancing application.
#6 Submit the Application
After choosing a lender to work with you for refinancing your home mortgage, complete the application online to speed up the review of your financial credentials. If you qualify for refinancing, your lender might have set up a web page to complete the closing on the refinanced mortgage.
If the value of your home has remained stable during the COVID-19 pandemic, refinancing should make financial sense. We might not see mortgage rates this low again for a long time.