Thinking of Refinancing? Mortgage Rates on the Rise

Even with mortgage loan rates on the rise at the time of this writing, many home owners are considering their refinance loan options, and for a variety of reasons. Whether you are considering a refinance loan to cash in on the equity building up in your home, or you want a lower interest rate and/or monthly payments, there are a few things to consider when planning your refinance loan application.

The first is time. For all credit-qualifying refinance loans (where a credit check and/or appraisal are required) you should give yourself plenty of time to prepare for both the credit check and the appraisal. Since most financial experts recommend borrowers seeking new purchase home loans to give themselves at least one year prior to the application to prepare, it makes sense to give more or less the same prep time for a refinance loan too.

Why? For one, if any erroneous credit data shows up on your credit report when you check it before applying, you’ll have plenty of time to sort out the problem. You may be required to file statements, police reports (in the case of identity theft) or jump through other hoops in order to set the record straight. Doing so at the same time you’re working refinance loan paperwork is not a good idea--there’s no guarantee your issues can or will be settled in a matter of weeks.

Another is directly related to your credit report. You’ll want to have at least 12 months of reliable on-time payments with no lateness on your credit report before applying for any credit-qualifying refinance loan. You should also avoid taking out large new lines of credit in that year leading up to the application, too. The one-year rule is an important one--for some borrowers with lower credit scores, this could make or break a credit application.

Another area you’ll want to spend some time preparing for? Closing costs and related fees. Yes, you may be able roll some expenses into your loan amount, but paying them up front can give you a lower monthly payment and save you money over the lifetime of the refinance loan. Do the math on including costs into the loan that you could pay up front--you may be surprised at how much you save by budgeting for these expenses up front instead.

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