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3 Signs You’re Not Ready To Refinance Your Mortgage

If you have a 30 year mortgage, you might be thinking about refinancing it. Despite a rising mortgage rate, mortgage rates in general are still low. So refinancing your current mortgage rates while they’re still low not only makes sense, but it can also save you thousand of dollars in interest in the long term.

However, refinancing might not be the right move for you right now. Here are 5 reasons you might actually be better off putting refinancing your 30 year mortgage plans on hold.

Click here if you’re interested to find out the best mortgage refinance rates.

1. You don’t plan on staying in the home for too long to recoup the closing costs.

Should you refinance your mortgage depends on how long you plan on staying in the home. Refinancing a 30 year mortgage, or a 15 year mortgage for that matter, simply means that you get a new loan to replace an old one, in the hope that you can get a lower interest rate and in the hope that you can shorten the term of the mortgage loan, etc.

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But what you might not realize is that refinancing cost anywhere from 3 % to 6 % of the loan’s principal. And it can take years to recoup that cost with the saving you get by a lower interest. This is one of the dangers of refinancing.

So, if you’re not planning on staying in the home for more than a few years, then refinancing, despite a lower rate, may end up costing you more money. For more, see 5 Reasons You’re Not Ready to Buy a House.

So before you refinance your 30 year mortgage, ask yourself these two questions: 1) How long do I plan to continue living in the home? 2) How much will I save by refinancing.

2. You have less than a stellar credit score.

Your credit score plays a major role in determining the refinance rate you will qualify for. The higher your credit score, the better is your chance to receive the best refinance rates. If you have a low credit score, say a 650 of less, you may find it difficult to find lender willing to offer you a loan. Even if you are qualified for a loan with a low credit score, you might not get the best mortgage refinance rates.

Related: What Is A Good Credit Score?

Click here to check your credit score with Credit Sesame. It’s completely, 100% FREE.

So, if your credit is low and you cannot get qualified for a loan, wait until your credit score improves.

Here are simple ways to improve  your credit score.

There are several ways to raise your credit score. First, pull your credit report from a free credit monitoring service. Check your credit report for any errors or inaccuracies. If you do find any mistakes, address them immediately by calling any of the 3 credit bureaus.

Another way to improve your credit score is to pay your bills on time (i.e., your credit card bills, utilities, etc). According to myfico.com, on time bill payment accounts for 35% of your credit score. So it’s crucial to make on time payments.

Another way to raise your credit score is to keep your credit utilization rate low. Your credit utilization rate is the amount of credit you’re currently using divided by the total amount of credit available. For example, if you have $5,000 in credit available, and you have a balance of $2500, then your credit utilization rate is 50%. That means you are using half of the total credit you have available.

A good rule of thumb is to keep your credit utilization rate below 30%. For example, if your total credit limit is $5,000, your total balance should’t exceed $1500. A low credit utilization rate shows to lenders that you can manage your credit responsibilities well, because you’re far from overspending. Whereas a high credit utilization rate can be an indicator that you’re too good at managing your financial responsibilities.

Lastly, try not to apply to new credit unless you really have too. Too many inquiries on your credit report sends a red flag to lenders that you are desperate for credit. 

Learn More: How to Raise Your Credit Score to 850.

3. You stick with only one mortgage lender.

The truth about refinancing your mortgage is that when you do, you usually get a lower interest rate. In fact, that’s one of the key reasons people refinance their home. So if you’re only considering one mortgage lender to refinance your 30 year mortgage, then you might not be ready. You need to do additional research.

In other words, you need to sort out through various lenders in the marketplace for the best refinance rates. Doing this will make a big difference in the amount of cash you will spend in fees to get the loan, the mortgage interest available to you, etc…

Lendingtree connects you with multiple lenders simultaneously and help compare the services of those lenders and work to secure you the best refinance rates. 

If you are interested in comparing the best mortgage rates through LendingTree click here. It’s completely free.

In conclusion,

Is it a good idea to refinance your mortgage? Not necessarily. Refinancing your 30 year mortgage have major benefits, like saving thousand of dollars in interests. Before you embark on the process, make sure you’re ready.

To recap, before you decide to refinance your mortgage, check Lendingtree for the best refinance rates.

Also, a good credit score can save you lots of money on your mortgage. Check your credit score for free at MyFreeScoreNow.

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