From an interest rate standpoint, there has never been a better time to refinance,” says Greg McBride, senior financial analyst with Bankrate.com. Thirty-year fixed rates hit a record low in October, dropping to just under 4 percent. And with the threat in the air of losing the mortgage interest tax deduction, procrastination could cost you.
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To determine if refinancing is right for you, consider not only your home equity but your timeline. If you’re going to stay in the home only two to three years, says McBride, you probably won’t recoup the fees. (As a rule of thumb, fees are about 1½ to 2 percent of the loan amount.) He suggests dividing them by how much you will save each month to find your break-even point. Thus, if fees are $2,000 and you’ll save $100 a month, your break-even point is 20 months.
A homeowner with an adjustable-rate mortgage might benefit by refinancing to lock in a fixed rate. A couple who have paid down the balance on a high-interest jumbo loan below the ceiling guaranteed by Fannie Mae and Freddie Mac, which varies by area, might consider refinancing to get a lower rate. Or a 50-year-old might want to convert a 30-year mortgage to a 10- or 15-year loan and pay it off before retirement.
When you’re ready to start, experts suggest getting a copy of your credit score to determine the likelihood you’ll be approved for a loan. The Mortgage Bankers Association reported in June that 46 percent of mortgage loans were written to borrowers with scores over 750. Once you get your score, you’ll want to compare the rates of different banks and credit unions to get the best deal.