Another Wave of Refinances? A Warning to Rate Shoppers!
Rates on 30 year fixed mortgages have now dipped below 5% for the first time since May. Many people that wanted to refinance back in May were “waiting” for rates to drop to 4.5 or lower and often were ’shopping’ multiple lenders for a better rate. It didn’t happen. Towards then end of May and into June, rates began to rocket upwards and got close to 6% for some borrowers and certain loan scenarios.
With these record low rates, some of those borrowers left behind in May will want to consider refinancing now. If you were one of those that missed the last dip in rates, there are some things you know and plan for in order to take advantage of the low rates now. A word of warning, you can not ’shop’ rates with different lenders effectively if you don’t understand the factors that are included in a true rate quote. Rates are good only for the minute in which they are quoted. They fluctuate daily, often many times throughout the day. If a company ‘posts’ rates on their website, rest assured that the ‘posted’ rate is NOT necessarily going to apply to you because a true rate quote will take in a number of factors that are specific to you and your particular loan scenario.
For example, a true rate quote will be based on your credit score, loan-to-value (the amount you want to borrower versus the value of the property), where your property is located (rates are not the same nationwide), whether or not your new loan will require PMI insurance, and whether or not you will be receiving cash back at closing.
Your rate will be higher if you are paying off a first and second mortgage (considered a cash-out refinance even if you are not getting money back at closing) than if you are simply refinancing the balance on a first mortgage. However, if your loan-to-value is below 70% and your credit score is near 800 or higher, it may not impact the rate as much so as you can see, it’s very hard to compare ‘apples to apples’ if you are trying to ‘rate shop’. If you have multiple lenders pull your credit report because they need your credit score to provide you with an accurate rate quote, you risk your score being affected.
A much better strategy for the savvy borrower is to shop for a reputable lender. If you select a good lender and have an experience loan office, s/he will be able to ensure that you receive the best rate available for your specific loan scenario. Once you’ve determined which lender/loan officer you want to work with, then you can give that loan officer permission to pull your credit report and provide you with an accurate rate quote.
Also, it is important to keep in mind that if you lock your loan before the appraised value has been determined, you will risk your rate changing as values are very difficult to predict in the current market and the loan-to-value is a key factor in your rate quote.