During the COVID-19 pandemic, interest rates reached a historic low and led to a boom in home refinances. Home refinance, or “refi” for short, refers to the process of revising and replacing the terms of an existing mortgage or credit agreement to seek favorable changes to interest rate, payment schedule, and/or terms detailed in the contract agreement. In effect, a refinance trades an old mortgage for a new one.
If you own a home and would like to make the best of the low interest rates, this article may help as we explore how home refinance will be beneficial for homeowners like you.
Mortgage Rate Expectations in 2021
If you haven’t already undergone home refinance, what matters to you will be the mortgage rates in the near future. Mortgage rates are currently already climbing again from the historic low interest rates. This means that, while the mortgage rates are still considered quite low, they are likely to keep increasing throughout the year and you will have to act quickly to save more.
This is a result of increased economic recovery, inflationary expectations, and long-term bond rates.
How to Improve Your Chances With Home Refinance
That being said, there’s still time to tap into the low interest rates and refinance your mortgage. As long as your mortgage rates are higher than the current interest rates you can get, refinancing can be a good idea.
While the process may seem simple, there are certain methods you can utilize to make sure you can get the best mortgage rates from the process.
1. Increase Your Equity
To lower the principal, you can make additional payments each month. This will lower the amount that you still need to pay for your mortgage, and by doing so, you are increasing the equity in your home.
When you want to refinance and have at least 20% equity in your home, you may be able to exclude private mortgage insurance from your loan. This drives down the mortgage rate you will have to pay.
2. Consolidate Your Debt
Lenders will take into account your debt-to-credit ratio when settling on an interest rate, so the best way to achieve low interest rates for home refinance is by paying down your debt through consolidation.
This means that you can take out a new loan to pay off your existing loans, which will also reduce the number of loan payments you have to consider. You can also make use of a lower interest rate for this, which will help you pay off your debts quicker.
3. Lower Your Debt-to-Income Ratio
Another factor that lenders will consider is your debt-to-income ratio, which you can lower by paying less for your monthly utility bills. This may mean having to be more frugal for a few months.
The Home Refinance Market in 2021
The pandemic has resulted in low interest rates, which increases the appeal of tapping into the home refinance market. At the same time, to make the most use of relatively lower mortgage rates, you will have to ensure that you can increase your equity and lower your debt-to-credit ratio.
Lenders will look at how much debt you have in comparison with your credit and income, which is why debt consolidation and lowering monthly bills can be beneficial.
If you’re looking to refinance your home in Raleigh or Charlotte, NC, the states of North Carolina or South Carolina, contact us or call (704) 412-9131 today to discuss your mortgage refinance. We at Mecklenburg Mortgage are always here to help and go the extra mile for our clients.