Best Time to Refinance

[klarose]

When we got our mortgage we had such non-existent credit (always paid cash) that we couldn't get into the low interest rates. So we got the loan at a 6% rate, and we were told we had to refinance in 2 years.

Well after talking with the lender today I learned some new information.

We don't have to refinance within 2 years. He said he can extend it as long as we like, nothing happens. So we don't have a strict timeline anymore, except for worrying about if rates are going to increase.

Current 30 year fixed are at 4.5% at my bank. Which is already higher than I was hoping, when we first got our mortgage they were like 3.75%.

The big things holding us back from refinancing now is the loan fees. They charge more the lower your credit score is.

Credit Score | Refinance Fee

700 | 1.25%
720 | .75%
740 | .50%

Any less than that your talking 2% or 3% fees

Husband's score is currently at like 670.

He said there is nothing bad on there, the low score is just from "length of history." So now it's a waiting game for our scores to go up to get in the lower bracket.

In all honesty with the amount we are going to refinance at the lowest our fee will be $300 and at the high end $750. So it's not all that much of a difference.

But we will just keep making payments and let our score grow.

My question is, we currently owe a little more than $51,000.

When we refinance we are going to make it either $60,000 or $65,000. To put towards a remodel we are going to do. We are going to save for the other $15,000 to $20,000 we need, we also have the option of putting some on a HELOC.

We won't have it saved by next year.

So my main question is, do we refinance next year as planned and stick the extra remodel money in a CD or savings account.

Or do we just continue our current payments and put off refinance for another couple years until we have the rest of the money saved. The only thing I worry about is interest rates going up by then.

If we refinance today at current rates for the amount we need we would be saving about $420 a year in interest. Our monthly payments would be the same. You also have to add in the loan fees we will have to pay, probably around $500.

So if it was you, would you refinance next year before rates go up more, or would you wait it out until you saved up the rest of the money needed.

[Petunia 100]

You don't know that rates will be higher next year. They could be the same or lower.

How does your credit score affect your interest rate? I see where you said it impacts the fees, but not the actual rate. Usually, a score of 740 is needed for the best rates. Your lender may have different rules.

Have you heard of Credit Karma? It is a free site which calculates your credit score. You do need to supply your SSN. I have been using it for years and have never experienced having my SSN compromised. Many people use Credit Karma, it has a good reputation. Credit Karma has a tool which will calculate your score based on different scenarios. I suggest you register and use the tool, to figure out what it will take to get your score up. If it is going to take years for your score to improve significantly, you should know that.

[klarose]

You don't know that rates will be higher next year. They could be the same or lower.

How does your credit score affect your interest rate? I see where you said it impacts the fees, but not the actual rate. Usually, a score of 740 is needed for the best rates. Your lender may have different rules.

Have you heard of Credit Karma? It is a free site which calculates your credit score. You do need to supply your SSN. I have been using it for years and have never experienced having my SSN compromised. Many people use Credit Karma, it has a good reputation. Credit Karma has a tool which will calculate your score based on different scenarios. I suggest you register and use the tool, to figure out what it will take to get your score up. If it is going to take years for your score to improve significantly, you should know that.

I don't know what the rates will be. That's why I don't know what the best option is. Should I refinance as soon as possible (after score goes up), or just keep waiting and hope they don't go up?

I don't need to calculate my credit score. I went to the bank today and got it. We are doing everything we can to raise it, it's just going to take time. The banker seemed adamant that he thought it would be in the 700s by next summer, but there is no way to be sure. It went up around 30 points over the past year.

Yes we also need it to be at least in the 700s before we will get a good rate. The higher the better of course, but I for sure wouldn't refinance before 700.

I'd hate to miss out on the lower rates, but I also don't want to rush into it. Although right now the only downside I see of refinancing after we reach 700s is a $750 loan fee. But we'd also be saving $420 a year in interest. So it's a toss up.

[Petunia 100]

I don't need to calculate my credit score. I went to the bank today and got it. We are doing everything we can to raise it, it's just going to take time. The banker seemed adamant that he thought it would be in the 700s by next summer, but there is no way to be sure. It went up around 30 points over the past year.

That's what the tool is for. You can calculate your score based on different circumstances you input. For example, if your credit history were 2 years old instead of 1.

[disneysteve]

we currently owe a little more than $51,000.

When we refinance we are going to make it either $60,000 or $65,000. To put towards a remodel we are going to do.

I would not increase your mortgage to pay for a remodel. Handle those as two separate transactions. A mortgage for the house, a home equity loan or line of credit for the remodel. That way you can wait to borrow for the remodel until you actually are ready to do the work. It doesn't make sense to borrow it now and park the cash in the bank and being stuck with the higher payment as a result.

[Jerry91]

The mortgage and the real estate market is improving and mortgage interest rates are slowly going upwards. So, it will be better if you could get in touch with a lender and take out a loan once your credit scores improves. Moreover, as you will be liable for paying the closing costs at the time of refinancing, you should remember that you will be able to offset it only if you can stay in the same property for 2 or more years.

[klarose]

The mortgage and the real estate market is improving and mortgage interest rates are slowly going upwards. So, it will be better if you could get in touch with a lender and take out a loan once your credit scores improves. Moreover, as you will be liable for paying the closing costs at the time of refinancing, you should remember that you will be able to offset it only if you can stay in the same property for 2 or more years.

We are planning on making this our forever home, but you never know. We will be staying in it for at least 2 years though I'm sure.

I think we will try to refinance next winter. Unless of course our score goes up before then, and interest rates start increasing too much.