As the coronavirus brings the world to a standstill, homeowners are clinging to one bit of good news — this may be the perfect time to refinance.
The pandemic has driven rates to historic lows, causing a record number of people to rush to save money on their mortgage. If you own a home, you’ve probably at least thought about refinancing recently.
Before taking the leap, consider these factors:
REFINANCING HAS BENEFITS AND DISADVANTAGES
The pros: Acting now could put more money in your pocket each month at a time when it’s sorely needed. New terms, whether it’s the length of the loan or a better interest rate, may help many who are struggling during this crisis.
The drawbacks: Bear in mind that your monthly payments may be lower with a longer-term loan, but you’ll be making them longer and paying more interest.
Remember that refinancing comes with closing costs. Make sure the immediate expense doesn’t exceed what you hope to save in the long term. There are numerous refinance calculators online to help you determine whether a change is worth it.
BE SURE TO SHOP AROUND
Sure, check with your present lender, but make sure you get multiple quotes — at least three is the rule of thumb, according to Forbes. Failing to get the most competitive rate can cost you thousands over the life of your loan.
Also, be thorough and provide each prospective lender with the same information so you can make a fair comparison.
TIMING
This is an opportune time for many people to refinance, but that doesn’t mean it’s the right time for you. Lenders will consider several factors when considering your refinance application, including the equity in your home, your income, your credit status and how well you’ve maintained your original mortgage.
Has your credit score dropped since you first applied for your mortgage? Do you own less than a 20 percent stake in your home? Will you be in your home long enough to recoup the upfront costs? Depending on your answers to these questions, refinancing may be a bad idea – even in the current climate.