- When To Refinance Your Home Mortgage | 3 Strategies
- When to refinance your home
- Strategy 1: The ‘refinance to break even’ rule of thumb
- Strategy 2: The cash-flow refinance method
- Strategy 3: No-closing-cost refinance
- Good reasons to refinance your home loan
- Refinance requirements
- Refinance rates today
- Does Refinancing a Personal Loan Hurt Your Credit Scores?
- 1. Shopping for a New Loan
- 2. Opening Your New Account
- 3. Paying Off Your Old Loans
- 1. Check Your Credit
- 2. Shop Lenders and Compare Loan Offers
- 3. Apply For and Accept a Loan
- 4. Pay Off Your Old Loans
- 5. Confirm Your Old Loans Are Paid Off
- 3 things to know when refinancing a personal loan
- 1. What refinancing a personal loan entails
- 2. Pros and cons of refinancing a personal loan
- 3. How to refinance a personal loan
- Top 5 Things To Know Before You Take Out A Loan
- 1. Why you need the money (and if there’s a better option)
- 2. All of your loan options, including where to get the loan
- 3. How much you can afford to borrow (and pay back)
- 4. Your credit score (and credit history)
When To Refinance Your Home Mortgage | 3 Strategies
Mortgage rates hit record lows again and again in 2020. And interest rates are expected to stay low throughout 2021.
As a result, millions of homeowners are “in the money” to refinance — meaning they could lower their current mortgage rate and save big on monthly payments.
Ofcourse, deciding when to refinance your home isn’t a simple decision. Your realrefinance rate and savings depend on many different factors.
So, howdo you know when to refinance your home? Here are three trusted strategies thatcan help you decide.
Check your refinance rates (Mar 25th, 2021)
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When to refinance your home
If refinancingyour home loan saves you money, there’s a good chance you should do it.
Even if you just recently bought the home or completed a refinance, it’s probably not too soon to find yourself a better deal.
That said, refinancing isn’t a flip of a switch. It takessome time, and there are closing costs and paperwork to consider.
You’ll have to weigh thebenefits of a mortgage refinance against the upfront costs to make your decision.
There are three simple ways to look at the numbers:
- The break-even rule of thumb: A refinance might be worth it if the savings outweigh your closing costs within the amount of time you plan to stay in the home
- Lowering your monthly mortgage payments: Refinancing for a lower interest rate and lower monthly payment can help if your budget is tight and you need to free up your cash flow. This strategy might even be worth it if your interest costs are higher in the long run
- No-closing-cost refinancing: If you can find a refinance program with low or no closing costs, the decision becomes a lot easier. You’ll ly pay a slightly higher interest rate, but you might be able to avoid the out-of-pocket cost of refinancing
Start by clearly defining your goals. Know what yourfinancial objective is, and how a refinance will help you get there.
Then check refinance rates available to you. If they’re significantly lower than your current mortgage rate, a refinance is ly worth it.
Strategy 1: The ‘refinance to break even’ rule of thumb
Your biggest consideration whenrefinancing will probably be closing costs. As with the original mortgage,closing costs for a refinance can easily total a few thousand dollars.
With that in mind, the first question to ask yourself is: Will I stay in the house long enough after refinancing to reach the break-even point?
The break-even point is when your total savings equal the amount you spent on refinance closing costs. After that point, you start seeing ‘real’ savings on your new loan.
You can get a simple answer to this question by dividing your closing costs by your estimated monthly savings. For example:
- Refinance closing costs and fees: $3,000
- Monthly savings: $300
- Time to break even: 10 months
In this scenario, the homeowner won’t start seeing savings until 11 months in. If they’re planning on staying in the house for another few years, a refinance is probably in their best interest.
Calculate your potential savings using a refinance calculator
Here are a couple more tips for calculating your refinance savings:
- Closing costs to consider include title, escrow, and origination fees. Ignore prepaid items taxes and insurance, since you’ll have to pay those anyway
- Look at your interest savings, not your payment savings. The goal is to pay significantly less in interest over the life of the loan, not just to lower your payment
If you’re planning on moving or selling before you’ll break even, take another look at your goals.
There might still be reasons to refinance ( freeing up your cash flow, below), but it’s more ly to be a wash. You might wait till interest rates drop a little lower and you can break even faster.
Strategy 2: The cash-flow refinance method
Saving money over the life of your loan is a great reason to refinance. But it’s not the only one.
Say you’re a few years into your current loan, and really struggling with monthlypayments. (It can happen to anyone.)
Refinancinginto a new 30-year term might increase your totalinterest payments over the life of the loan. But if it lowers yourmonthly payment and frees up some day-to-day cash? Refinancing might be worthit anyway.
Here’s an example of how this type of refinance might shake out:
|Original mortgage||Refinanced mortgage|
|Remaining term||23 years||30 years|
|Total interest remaining||$190,000||$215,000|
This homeowner would save $400 per month by refinancing. That extra cash can make a meaningful dent in monthly bills and living expenses. It could make all the difference in affording their home.
However, refinancing into a new 30-year term also means this person would pay an extra $25,000 in interest over the life of the loan.
Whether or not this type of refinance is worth it depends on your unique situation.
The important thing is that you’re fully aware of both the short- and long-term effects on your bank account before making a decision.
Check your refinance rates (Mar 25th, 2021)
Strategy 3: No-closing-cost refinance
There’s one more surefire refinance strategy: The no-closing-cost refinance.
Believe it or not, any lender can offer you a refinance with no closing costs. But it’s not exactly a free lunch.
A no-closing-cost refinance still technically has closing costs. You just don’t pay them upfront.
You can either finance the closing costs (paying them off over the life of the loan) or accept a higher interest rate in return for the lender covering your upfront fees.
That might sound backward, considering that you’re probably refinancing because you want a lower rate.
But if mortgage interest rates are low enough, you can ly see a slight uptick and still save a lot in interest in the long run.
For example, imagine you’re refinancing a 30-year, fixed-rate loan of with a balance of $300,000 and a 4.75% interest rate:
|Refinance with closing costs||Refinance with no closing costs|
|New interest rate||3.75%||4%|
|Total interest savings (over 30 years)||$93,400||$77,800|
Paying $3,000 in closing costs would save this homeowner more over the life of the loan, of course.
But if they can’t (or don’t want to) pay $3,000 pocket, they can still save more than $70,000 over 30 years with a no-closing-cost refinance. That’s not a bad deal.
Verify your new rate (Mar 25th, 2021)
Good reasons to refinance your home loan
The three strategies above should help you figure out whether a refinance is worth it the amount of money you can save.
But a refinance can help you with other financial goals, too — aside from just reducing your mortgage payments.
Here are just a few good reasons to consider refinancing your mortgage:
- Cancel mortgage insurance: You can use a refinance to get rid of mortgage insurance (either PMI or MIP) if you’ve built enough equity in the home
- Refinance to a shorter term: You can pay off your home sooner by refinancing from a 30-year mortgage to a 15-year loan, or a less common loan term a 10 or 20-year mortgage. Rates are usually lower, but your monthly payment will increase since you’re paying off the loan with fewer payments
- Get an ARM and lock low rates: Adjustable-rate mortgages usually start with low rates, but they can spike later. Refinancing into a fixed-rate mortgage can help you lock in a low rate for the rest of your loan term
- Get cash out: As you pay down your mortgage, your home equity grows. A cash-out refinance lets you access some of that equity money to pay for renovations, kids’ college tuition, or other big-ticket items
- Consolidate debt: You can also use a cash-out refinance to pay off high-interest debt, from credit cards or personal loans, at a lower interest rate. Use extreme care with this method, as it’s easy to run debts back up and end in a worse place than where you started
- Pay off liens, second mortgages, or judgments: If you’ve taken out a second mortgage (“piggyback” loan), home equity line of credit, or other judgment on the property, you can use a cash-out refi to pay these things off
You can learn more about these refinance strategies in our complete guide to refinancing a home.
Refinancing your home means takingout an entirely new mortgage to replace your old one. As such, you’ll need tocomplete a full loan application and pass basic mortgage loan requirements.
The minimum requirements torefinance depend on the loan program you’re using.
- Conventional refinance loans typically require a credit score of 620 or higher. If you have at least 20 percent equity, you can avoid paying for private mortgage insurance and you’ll save more money
- FHA refinance loans usually require a credit score of 580 or higher. If you want to take cash out, you’ll ly need a credit score of at least 600. FHA Streamline Refinances technically do not require credit, income, or employment verification — or a new appraisal. However some lenders may check those criteria anyway. FHA refinance loans charge mortgage insurance premium (MIP), but if you have at least 20 percent home equity, you can ly refinance to a conventional loan with no mortgage insurance
- VA refinancing usually requires a credit score of at least 620, though some mortgage lenders are more lenient. VA loans do not require mortgage insurance and typically have the lowest interest rates of any mortgage program. The VA Streamline Refinance or ‘IRRRL’ does not require income or employment verification, or a new appraisal
- USDA refinancing typically requires a credit score of at least 640. Just for USDA home purchase loans, the property must be located in an eligible ‘rural’ area. USDA borrowers also have access to a streamlined refinancing program with looser documentation requirements
Whichrefinance option is right for you? That depends on your credit report andscore, your current mortgage, your home value and loan amount, and your overallgoal for refinancing.
You can compare refinance options here or chat with a lender, who will be able to direct you to the right loan program your specific profile and needs.
Refinance rates today
Refinance rates today are nearrecord lows, hovering in the high-2% and low-3% range.
Low rates are predicted to stickaround for a while — but they’re not ly to drop much further. So if you’re wonderingwhen to refinance your home, now might be the time make your move.
Compare refinance rates from afew lenders to find the best deal for you.
Verify your new rate (Mar 25th, 2021)
Does Refinancing a Personal Loan Hurt Your Credit Scores?
Refinancing a personal loan could lower your monthly payments, save you money on interest and make it easier to manage your bills. Sounds good so far, but there's also a downside. Refinancing a personal loan involves taking out a new loan to pay off your current loan (or loans), which might hurt your credit scores.
Generally, if you make your loan payments on time, this isn't a long-term concern and your scores will rise again. But it's something to be aware of as you're considering refinancing a personal loan.
Find the best personal loans in Experian CreditMatch™.
Here's a look at the three main steps in the loan refinancing process and how each one can affect your credit scores.
1. Shopping for a New Loan
Each loan application you submit could result in a hard inquiry, a record of when a lender checks your credit report before making a lending decision. Hard inquiries stay on credit reports for two years and may affect credit scores for the first 12 months.
When they impact your credit scores, hard inquiries tend to lead to a small drop. The drop is often offset within a few months as long as you're making on-time payments on your new account and no other negative information gets added to your credit report.
Multiple hard inquiries during a short period can increase the drop in scores. However, credit scoring models also know that rate shopping is a financially savvy practice.
With this in mind, some credit scoring models don't consider inquiries from the last 30 days, meaning your applications from last week won't impact your application this week. Scoring models may also count all the hard inquiries that occurred in a 14- to 45-day window as a single inquiry when calculating your credit scores.
2. Opening Your New Account
Opening the new loan you'll use to refinance your personal loans can impact your credit scores in several ways:
- It may shorten your average age of accounts, which could hurt your credit scores.
- If you're taking out one new loan to refinance multiple personal loans, that might increase your scores because you'll have fewer open accounts with balances.
- As you start repaying your new loan, your on-time payments can help you build a positive credit history, which can increase your scores.
3. Paying Off Your Old Loans
The loans you refinanced will be closed once they're paid off. The old accounts will remain on your credit reports for up to 10 years, and any negative or positive information associated with the account, such as late or on-time payments, could still impact your credit scores during that time.
Your scores may be hurt when your closed accounts drop off your credit reports, as that could decrease the length of your credit history and average age of accounts.
Find the best personal loans in Experian CreditMatch™.
Refinancing a personal loan can help you:
- Save money by lowering your interest rate.
- Improve your cash flow by lowering your monthly payment.
- Make managing your debt easier by combining multiple loans.
In some cases, you may be able to accomplish two, or even all three, of these goals at once. However, if you're paying less each month, you might wind up paying more interest overall unless you qualify for a significantly lower interest rate.
You may want to look into refinancing if your credit or income has improved since you first took out your personal loan. Even if your creditworthiness has stayed about the same, if interest rates have generally gone down, that might also be a cue to start shopping.
As you're comparing loan offers, a debt refinancing or loan consolidation calculator can help you determine your overall cost or savings.
These five steps are a summary of the refinancing process, although it can vary depending on the lender and type of loan you're taking out.
1. Check Your Credit
Checking your credit scores can give you an idea of which lenders or loan types might be a good fit for you right now. If you have poor credit, you may want to work on improving your credit before refinancing your personal loan.
2. Shop Lenders and Compare Loan Offers
Whether you're looking for the lowest possible interest rate or lower monthly payments, you may want to submit multiple applications to see which lender offers you the best deal.
Start by making a list of the lenders that offer loans that meet your criteria. Consider the minimum and maximum loan amounts, terms and interest rates that each lender advertises. If you can find information about their typical credit score requirements, that can help you narrow the list.
Experian's CreditMatch™ service can also provide you with multiple lenders and loan offers your credit profile.
Find the best personal loans in Experian CreditMatch™.
3. Apply For and Accept a Loan
Once you've identified good potential lenders, submit multiple applications starting with the lender you think is the best fit. To limit the impact on your credit scores, try to submit all your applications within 14 days.
You can then compare your official loan offers from each lender before accepting the best one.
4. Pay Off Your Old Loans
Some lenders may be able to send the money you're borrowing directly to your current creditors to pay off your loans. Otherwise, the lender might send you the funds, which you can then use to pay off your personal loans.
5. Confirm Your Old Loans Are Paid Off
Don't forget about your old loans until you've confirmed that the accounts have a zero balance and are closed. You don't want to wind up accidentally missing a payment due to poor timing.
Overall, refinancing personal loans may lead to a minor drop in your credit scores due to the hard inquiries from the applications and opening of a new credit account.
Over time, your scores may recover and then increase if you continually make on-time payments on your new loan.
Generally, the small drop is worth it if refinancing can save you money or make managing your loan payments easier.
Want to instantly increase your credit score? Experian Boost™ helps by giving you credit for the utility and mobile phone bills you're already paying. Until now, those payments did not positively impact your score.
This service is completely free and can boost your credit scores fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.
3 things to know when refinancing a personal loan
With interest rates at record lows, it may be a good time to consider refinancing any debts you currently have, such as personal loans. Refinancing your personal loan can not only lower your annual percentage rate, but it could also provide you with an opportunity to combine debts into one payment that can improve your monthly budget.
If you're interested in refinancing your personal loan, use tools Credible to plug in your loan amount and estimated credit score to compare rates and terms from a variety of reputable lenders. Get started today to see what kind of offers are available to you!
Before you apply for a personal loan refinance, though, it’s a good idea to understand the refinancing process so you can determine if it’s right for you.
1. What refinancing a personal loan entails
Refinancing any type of loan involves taking out a new loan — usually one with a better rate or more attractive terms — in order to pay off an old loan. In some cases, you can refinance the loan through the same lender, or you may choose to use a new financial institution that has better options.
Credible has several personal loan options to choose from. You can use their free rate table to view what a variety of lenders are offering, starting with rates as low as 3.99% APR.
HOW TO FIND THE BEST PERSONAL LOAN FOR YOUR NEEDS
2. Pros and cons of refinancing a personal loan
Refinancing a personal loan has its positives and negatives. It's up to you to decide if one outweighs the other. Here's what you need to know.
- Reduce monthly payments: It might be an ideal time to refinance in order to take advantage of low rates, especially if your credit score has improved and you can qualify for loans with interest at the lower end of the spectrum. For example, if you currently have a three-year $10,000 personal loan with an 11% interest rate, your payment is $327. By refinancing that account to a loan with a 5.5% rate, you reduce your payment to $302, saving $300 a year in interest. You can use Credible’s personal loan calculator to determine how a reduced interest rate could impact your budget.
- You can change your loan term: Another benefit of refinancing a personal loan is to adjust the length of your loan period. You can refinance to a shorter amount of time, reducing the amount of interest you will pay over the term of the loan. While a shorter repayment period will increase your monthly payment, you’ll get debt faster. You can compare interest rates and term lengths from multiple lenders by using a free online tool Credible.
- Lock in a lower rate: And another good reason to refinance is if you currently have a personal loan with a variable interest rate. Since rates are at record lows, refinancing can help you lock it in and take advantage of the current economic climate.
9 OF THE BEST PERSONAL LOANS IN 2020
- It could end up costing you more: If you were already several months into your loan, a new loan may end up costing you more interest in the long run if you refinance to a loan with a longer repayment period.
- There could be extra fees: Some lenders add in charges for personal loans, such as origination fees. Depending on the amount, it could negate any savings you might get from a lower interest rate. And some lenders have prepayment penalties. While not common, it could cost you more money to refinance to a loan with better terms.
- You could hurt your credit score: Finally, when you refinance, lenders will check your credit with a hard inquiry. While it’s temporary, it could lower your credit score. If you plan on needing any other loan soon, such as a mortgage, it may impact your rates on future credit.
HOW TO GET A $50,000 PERSONAL LOAN
3. How to refinance a personal loan
If refinancing makes sense for your budget, then take these steps to complete the process:
- Figure out how much money you need: You can either log into your account online or call your current lender to obtain a payoff balance. This will provide you with an exact amount for your application.
- Check your credit score and credit report: By understanding your current situation, you can realistically estimate the offers you might be able to obtain and confirm that it makes sense to refinance. You are entitled to a free credit report each year from the three credit bureaus, Equifax, Experian and TransUnion. If your score is low, you can take steps to improve it before you apply.
- Shop around for the best rates: Take advantage of a site Credible where you can easily compare offers from multiple lenders without affecting your credit score. You might also want to call your current lender to see if they will be willing to offer you a better rate to keep you as a customer. Be sure to look at the fine print on any offers you receive.
- Fill out your application: Once you’ve chosen your lender, fill out the application, and provide the required documentation, such as proof of income, tax forms, bank statements, and identification. Once you’re approved and receive your funds, pay off your current loan. With personal loans, most lenders will deposit the funds in your account instead of facilitating the payoff of the current debt. After you make the payment, confirm that the previous lender has closed the loan.
- Start making payments on your new loan: You can set up automatic payments from a checking account to ensure that you don’t miss a payment.
The reason to refinance any loan is to create a more favorable situation for your finances.
Make sure you visit a site Credible where you can compare offers and terms to find the best loan for your situation. You can also connect with vetted loan officers who can answer your questions. Taking time to understand the process will be valuable for protecting your finances in the long-term.
HOW TO GET A PERSONAL LOAN IN 7 EASY STEPS
Top 5 Things To Know Before You Take Out A Loan
With emergency savings not always available and debt levels rising, more and more people are turning to personal loans to cover emergencies, pay for medical bills, and consolidate their credit card debt.
Taking out a loan can be a significant financial decision, so it’s best to make it a smart one. Here are five essential things to know before you take out a loan
1. Why you need the money (and if there’s a better option)
Knowing why you need to borrow money, to begin with, is the most critical factor you need to consider before taking out a loan. Borrowing money is a big financial step, and it can help you or hurt you—depending on how you manage it.
The most substantial loan you’ll ever take out is your home mortgage. If you can afford a sizable down payment and it’s a home that is within (or below) your means, it might mean taking out a loan is worth it.
But what about personal loans?
According to Finder, 47% of the consumers they surveyed took out a personal loan to cover bills or emergencies. Borrowing money to pay for things medical bills, a flooded basement, or a dented car is never ideal, so I always recommend building up emergency savings first.
That being said, about 69% of Americans don’t even have $1,000 saved for emergencies (CNBC)—so I understand why it may be a necessity (although this is a deeper-rooted issue to tackle). So, if you must borrow money for an emergency, make sure you follow the remaining four steps below.
The most considerable portion of the people surveyed by Finder showed that they were taking a personal loan to purchase a vehicle (31%). Many people default to looking at auto loans specifically (and many times through the dealer themselves). But, a personal loan can actually be a good solution if you do it right.
If the reason you need the money isn’t exactly an emergency, and you can wait it out a few months (or longer), do it. I strongly recommend you use a tool PocketSmith to help you break the total cost you need into smaller, monthly chunks. Then budget for this more significant expense. It’s a more financially-savvy move to save the cash for what you need.
2. All of your loan options, including where to get the loan
Depending on what kind of loan you need, you will have quite a few options at your disposal.
The quickest and easiest way to get a personal loan is to go to the bank you already have a pre-existing relationship with.
By sitting down with a person and going over a loan application, they can often approve you on the spot. Plus, your loan will be with the same bank, which makes managing the payment a little more comfortable.
But to really save money, I’d encourage you to shop around online. There are many places online that now offer great deals on personal loans. Two of my favorites right now are Fiona and Credible.
Fiona gives you access to low rates to refinance your student loans. They have a simple form you fill out. It asks how much you need, what you need it for, what your credit score is, and your contact information.
From there, Fiona will pull a list of offers for you from multiple lenders so you can choose the best offer for your situation. Fiona makes money by referring you to lenders, and the lenders compete for your business.
This way, you get some of the best rates possible on a loan.
Credible works in a similar way. Credible allows you to consolidate both federal and private student loans, as well as loans with a co-signer (which many services this don’t).
Additionally, Credible offers personal loans, mortgage refinancing, and they even help you compare credit cards.
So as you’re working your balances down on your student loans, Credible has other options to help improve your finances, too.
3. How much you can afford to borrow (and pay back)
Now that you’ve determined why you need the money and that getting a loan is in your best financial interest, you’ll need to think about how much you can realistically afford (and pay back).
The word afford is tricky. Just because you can cover the monthly payment, doesn’t mean you can actually afford the loan. In fact, a recent Harvard study showed that nearly 40 million Americans are living in a home they cannot afford.
Cars are similar. A study by Bankrate showed that most families can’t afford the average new car anymore, while a AAA study showed that 64 million drivers would be incapable of coming up with just $500 or $600 for a car repair.
I don’t share these statistics with you to scare you away from taking out a loan—but I encourage you to reframe your thinking on the word afford.
The first step here is to ignore the APR of the loan for a moment. That’s usually the first thing the loan originator will try to sell to you. And rightfully so—it’s a standard way to compare loans quickly and easily.
But what’s even more critical than the APR is the total cost you’ll pay for the loan, sometimes referred to as the TAR (total amount repayable). This is the amount you borrow plus the interest you’ll end up paying over the life of the loan.
The reason this is important is that an APR can trick you. I’ll give you an example. Say you want to borrow $10,000, and you have two options:
- Option A: $10,000 at 5.00% APR over five years (monthly payment: $188.71).
- Option B: $10,000 at 6.00% APR over three years (monthly payment: $304.22).
Which is the better financial decision? Option A gives you both a lower APR and a lower monthly payment, but Option B is actually the better deal. Here’s how our output looks when using an amortization calculator:
As you can see, Option A costs 11,322.74, while Option B only costs $10,951.88—a savings of $370.86. This amount may seem small, but as your loan amount increases and your term becomes longer, these types of gaps continue to widen.
So when you’re thinking about what you can afford, consider the monthly payment, but most importantly consider the total amount you’ll end up paying back.
4. Your credit score (and credit history)
Now that you know what you can really afford to borrow and pay back, it’s time to figure out what type of loan and rate you can qualify for. Enter the credit score.
Your credit score and credit history are the lifeblood of your financial well-being. Without credit—specifically, good credit—you can kiss low rates, low payments, and overall savings goodbye.
One thing I found particularly shocking was that 45% of college students don’t know their credit score.
A college student is right at the beginning of their credit history in most cases, so I would think this would be the most crucial time to level-set and know where you stand. But it’s not just college students.
MoneyTips found that 30% of the general population they surveyed don’t know their credit score either.
The point is, you need to know your credit score and your credit history. The good news is that it’s easy to accomplish this.
For simplicity, I recommend using free tools Credit Sesame and Credit Karma.
But as a consumer, you’re entitled to get a free copy of your credit report from each of the three credit bureaus (Equifax, Experian, and TransUnion) every year.
MU30 even built a Credit Score Estimator tool so you can estimate what your score should be.