Financial Resource Center


Take Steps to Refi your Mortgage

by Susan Tiffany, CCUFC / May 21st, 2020

Low mortgage rates make this a smart time for qualified homeowners to refinance mortgages. The key word is "qualified."

Many homeowners think they cannot meet a lender's loan requirements. However, they should not assume they still are out of the running for a better mortgage rate.

To help you decide if this is a smart time for you to refinance:

  • Calculate your breakeven point. This is how soon you will recoup the cost of refinancing through lower monthly payments. If the cost to refinance is $2,125 and your monthly savings is $125, your breakeven point is 17 months (2,125 divided by 125).
  • Ask about fees. If you're paying $4,000 in fees to slash monthly payments by $100, but you plan to sell the house in three years, then refinancing doesn't make sense.
  • Look at a fixed-rate instead of an adjustable-rate mortgage (ARM). Despite a slightly lower rate on ARMs, the differential isn't worth the higher risk of an ARM.
  • Consider job stability. Switching from a 30-year to a 15-year fixed-rate mortgage lowers the total interest you'll pay over the life of the loan. But if you lose your job, you'll be stuck with higher payments you might not be able to afford. If job stability is a concern, keep a 30-year loan and consider increasing your monthly payment now—while you have a job—to the rate it would be for a 15-year fixed-rate loan.

Then take these steps as you get ready to approach a lender:

  • Clean up your credit. A credit score of 740 or more, plus 20% equity in your house, likely will get you the best interest rate.
  • Shop for the best rate. Start at your credit union and ask about options and rates. Get good faith estimates to compare offers before you formally apply.
  • Collect documentation. You'll likely need to provide recent pay stubs, two years of W-2s, proof of home insurance, two months of financial statements, and if you're self-employed, two years of tax returns.
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