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7-26-2018 • Tips for Smart Refinancing

CONSIDER THIS: The key to successful refinancing is for consumers to look carefully at their individual situation.

If you have a 30-year loan with relatively small monthly payments but now can make more substantial payments, it might make sense to refinance to a shorter term. The interest rate might not be significantly lower and monthly payments may stay the same or increase—but you will save money on interest over the shorter lifetime of the loan. Or, if you want to put the equity in your home to use to pay off debts or home improvement projects, a cash-out refinance might be a good option. If you need to free up money in the short-term, you may want to consider a loan with a significantly lower interest rate or monthly payment.

Make sure you know how much you stand to save, as well as the rate and term of your mortgage and how it compares to current rates at different terms in the market.

Once you’ve made the decision, here are three tips to smart refinancing:

Raise your credit score so you can get the best possible interest rate. A credit score in the mid-700s will serve you well. To raise your credit score, pay down credit cards, make on-time payments, and avoid taking on new debt before refinancing.

Be sure to shop around for an institution, including credit unions, that offer the best loan origination and document fees. It can also be valuable to search for a loan agent you trust to help you find a mortgage loan that best serves your financial position.

Buy mortgage points. These points, also known as discount points, are fees paid directly to the lender at closing in exchange for a lower interest rate. One point costs 1 percent of your mortgage amount; for example, $300 on a $30,000 loan. “Buying down the rate” basically allows you to pay some interest up front to achieve a lower rate over the life of the loan.

Interest rates—as well as home prices—are on the rise and are not likely to go any lower. So, if you decide this is the right option for you, now might be the best time to refinance.