How to refinance when mortgage rates are on the rise?
How to refinance when mortgage rates are on the rise?

Summary: Planning to get your mortgage refinanced in a market where the rates are on the rise? These tips could help you.

The entire idea of refinancing your mortgage is to grab a lower rate of interest that will reduce your monthly payments. But what if the rates are on the rise? Does that mean you can’t refinance? Here are a few tips you could use to refinance your mortgage even if the rates are on the rise:

Take action fast

If the rates are rising it is expected that they will shoot up even further with time. Instead of waiting for too long you could do some research on what rate you can get now and get your mortgage refinanced before it gets too late.

Get your refinance application ready

Being ready with your refinance application is a good way to prepare for a mortgage refinance just in case the rates drop. This way you can catch the rates when they are low. Since you will already be in the pipeline you won’t have to get back into the line and end up missing the dip in the rates. You will have your time to wait and watch the market and submit your application when you want to lock in on a particular rate.

Work on improving your credit score

It is best to start working on shaping up your credit score, when the rates are on the rise. Start paying your bills on time. Keep a safe distance from your credit limit. See if there are any errors in your credit report. It might take a while for the mortgage rates to start falling. But by then if you can improve your credit score, you will qualify for the best possible rate whenever it is time to refinance.

Consider a cash-out refinance

The rising rates may make this a good time for you to tap into your home equity and get a cash-out refinance. You can get some extra cash to fulfill your needs. But make sure you spend this extra cash on things that end up building your equity. If you are not comfortable with a cash-out to refinance, you could even try applying for a home equity loan or a home equity line of credit.

Convert your FRM into an ARM

If you have a fixed rate mortgage it is probably a good time to get it refinanced into an adjustable rate mortgage. Since such loans come with interest rates that are lower than FRM ones, you can end up saving quite a bit on your monthly payments. However, you need to track the changes in the rates and get your loan refinanced back into an FRM when it becomes difficult to make your monthly payments.

Consider a short-term refinance

Refinancing your loan into a shorter term FRM can help you get a lower interest rate even when the rates are on the rise. In the long term you will save a lot of money on the interest and start building on your home equity at a faster rate. Nevertheless, you might have to be prepared for a higher monthly payment.

Start paying points on your mortgage

Another way to lower your interest rate is to start paying money upfront on your mortgage. The exact amount that you will have to pay depends a lot on the market volatility. In a stable market, you can buy down your rate by paying a lesser amount. But if the market is too volatile it is better to wait until the rates stabilize.

Mortgage lenders may start getting in touch with you through mortgage live transfer leads, offering you options to get your loan refinanced. However, until you are sure such a refinance works to your advantage it is better to wait and watch.


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