But before refinancing a mortgage, it’s wise for homeowners to examine their credit ratings and take the steps necessary to ensure they get the best rates possible when refinancing.
• Get your credit report. Many people know they can access their credit report once a year for free. However, what those same people might not know is that there are three agencies that keep track of your credit, and you can access reports from each one for free once a year. So that’s essentially three free reports per year.
• Stop paying bills late. If you routinely pay your bills late, especially credit card bills, then you almost certainly won’t get the lowest interest rate when refinancing your mortgage. Make all credit card, utilities and installment loan payments on time. Once you’ve established a lengthy pattern of paying bills on time, then that might be a good time to visit your bank and discuss refinancing your mortgage.
• Don’t open new accounts. If you have a bad credit history, don’t open any new accounts, especially if you still have outstanding balances on existing accounts. Pay existing accounts down completely before you even consider opening a new account. Once balances are paid in full, then you might shop around for a new credit card.
Once you have addressed your credit score, there are some things you should know about the refinancing process. First and foremost, don’t expect the process to be free. The Federal Reserve notes that it’s not unusual for homeowners to pay anywhere from 3 percent to 6 percent of their outstanding principal in refinancing fees. You should expect to pay an application fee, a loan origination fee and points. (Points are a percentage of your mortgage loan.) Additional fees can include an appraisal fee, inspection fee, closing fee, and other fees that, when added up, can cost homeowners a substantial amount of money. It does pay to refinance, but before doing so, homeowners should repair their credit and determine if refinancing is truly for them.