By Tim Beyers
Sometimes Scrooge arrives before Santa. In December, the Federal Reserve played miser when it bumped the cost of short-term debt by a quarter point. Consumers may not want to wait for the agency to act. Here are six refinance tips you can take advantage of now if you’re looking to cash in at todays historically low mortgage rates to pay off credit card debt, retire student loans, or fund home improvements
- Check your credit score. Also known as your FICO score, this number can range from as low as 300 to as high as 850. To check your score for free, use Mint for your personal finances—the score is updated regularly—or a distinct provider such as Credit Karma. Be sure to look at the factors impacting your score. Are there things you could do to improve? If so, make those changes immediately and document what you’ve done.
- Pull a credit report and correct any errors. Credit ratings agencies such as TransUnion, Equifax, and Experian compile events and account history in lengthy reports that includes your FICO score. Thankfully, the Fair Credit Reporting Act guarantees consumers access to these reports, free, at least once annually by visiting this site. Look for negative items listed. Are you being unfairly targeted for a late payment that was forgiven or a credit card that isn’t yours? So long as you can provide paperwork that provides proof of your claim, it’s possible to fix these and other errors and improve your credit score.
- Look at your whole financial picture. What can you really afford? Do you know? Our mortgage loan calculator can tell you a lot. Or if your situation is more complicated, consult with a tax accountant or a fee-only financial advisor before deciding how best to use home equity when refinancing.
- Check the value of your existing home if you have one. Years of increases the average value of home prices has been a boon for current homeowners. If you’re among this privileged list, it may be worth checking the value of your home. Do more than check proprietary sites. While they can give you a sense of what your home might be worth in ideal conditions, you also want to know how the market is performing. For that, try the “sold homes” search engine at Realtor.com. Put in your zip and then use the filters to find homes that are close matches for your own that have sold recently.
- Shop around for rates. Mortgage interest rates can vary widely. Shop around online to get a sense of the range of available deals. Then, take those figures to a trusted agent to see what’s realistic and what isn’t given your financial situation. Just searching for “mortgage rates” on Google will bring you to a number of the most popular aggregators of current rate information.
- Get help from an expert. Once you’ve checked your credit, assessed your financial situation, and learned more about current rates and the potential value of your home, it’s time to call up an expert and run the numbers. A good mortgage partner should not only be able to tell you what you can afford, but also the kind of deal you should seek and what it will cost you all-in—no surprises. Avoid commission-only loan officers who get paid to rush you into an expensive deal.
At roughly 4 percent for a 30-year mortgage, today’s rates are a bargain by historical standards. But they may not stay that way for long. Do your research, shop around, and if you’re thinking of making a move, involve an expert who can help you get the best deal.
Tim Beyers is a mortgage analyst for American Financing, a national company employing salary-based mortgage consultants dedicated to helping homeowners make smart mortgage decisions that align with their unique financial goals.