Recently, the U.S. has seen a huge surge in refinances. Investors Title Company is no exception to this trend. From July 2019 to July 2020, we saw a 64 percent increase in refinance orders over the previous year.
So why are people choosing to refinance now — during a pandemic — and what should you know if you might refinance yourself? Here are some tips from the title and closing specialists at Investors Title.
Why the Refinancing Boom?
Despite COVID-19, people are buying homes more than ever. In addition, those who already own homes are refinancing their mortgages.
From March until August, rates have steadily dropped due to the coronavirus’s impact. Early August saw average interest rates on 30-year fixed mortgages fall to 2.88 percent — and it’s stayed close to 3 percent ever since. In addition, the average interest rate on 15-year mortgages dropped to 2.44 percent last month and continues to hover around 2.5 percent.
Both new home buyers and current homeowners alike have been scrambling to take advantage of these record-low rates, as it’s unclear if we’ll see rates like this again.
Should I Refinance?
While these low rates produce great opportunities for refinancing, it’s not always the right choice for every homeowner.
Ask yourself the following questions:
- Will you be able to save significant money on your monthly payment?
- Can you transition from a 30-year to a 15-year loan?
If you answer yes to either of these, refinancing may be a great option for you.
Save Costs Refinancing
In addition, you can look into no-closing costs mortgage loans, which are popular with borrowers who aren’t comfortable parting with cash reserves or want to refinance within 1 to 2 years of their initial home purchase.
By closing at the end of the month, you may save costs as well. Because mortgages for each month are paid on the first of the next month, the borrower will pre-pay interest for the days between when a loan closes and the first of the next month. You’ll also pay less daily interest because there are fewer days in between closing and the first of the month.
How to Refinance
Ready to refinance? Many experts recommend that you shop around to two or three lenders to compare rates before deciding to refinance.
If you’re not in a rush — many economists believe rates will stay low into 2021 — here some steps you can take before submitting your application:
- Raise your credit score by paying down high-interest debt and making your payments on time. Aim for a credit score of at least 700.
- Save more for a down payment. Ideally, your down payment is 20 percent, but you don’t necessarily have to save that much.
- Lower your debt-to-income ratio. This is the amount that you pay toward debts every month divided by your gross monthly income. Ideally, this ratio is 36 percent or less.
If you’re looking for a title company you can trust with your mortgage and refinancing needs, contact Investors Title today!