The COVID-19 outbreak is having a massive and unprecedented effect on all of us, impacting our health, our work and our finances. The national economy has seen deepening contractions and unemployment, and on the individual level, many people are now concerned about their own financial stability.
Attempting to introduce some stability and incentivize economic activity, the Federal Reserve has lowered interest rates to near zero and promised to keep them there for the foreseeable future. With interest rates so low, many people are now asking: Is this a good time to refinance? Read on for a few key considerations if you’re thinking about refinancing during a pandemic.
What’s the cost of your current loan?
To understand if refinancing is right for you, the first step is to calculate the cost of your current loan. To do this, you’ll need to know the terms of your loan, your monthly payment, and your current interest rate. Once you’ve got that information in hand, hop over to HUECU’s online calculators to work out the overall cost of your current loan.
Once you know the total interest, or cost, that you’re responsible for paying under the current terms of your loan, you can check if that number is higher or lower than what you might get through refinancing. HUECU has a “should I refinance my mortgage” calculator available online, which can help you compare your estimated interest before and after refinancing.
How strong is your credit score?
Depending on the requirements of your lender and your mortgage type, you may need to have a credit score of at least 580 – or higher – in order to refinance your loan. Having a good credit score shows your lender that you will be able to support monthly payments under the updated terms of the refinanced loan; and what’s more, refinancing can also have an effect on your credit score, lowering it in some cases.
With all this in mind, it’s a good idea to check your current credit score before you start the refinancing journey. Visit HUECU online for more info on what a credit score means and how you can find out your credit score. Seeing your score is completely free and learning your score will never have an impact on your credit – so don’t be afraid to take a look, so you can make a more informed refinancing decision.
If you find that your credit score isn’t where it needs to be, you might need to hold off on refinancing for the moment and instead focus on ways to build your credit. This could include a stronger budget and savings plan so you can pay bills on time, or diverting non-essential funds to pay off credit cards or other debt.
Why are you refinancing?
It’s important to consider your motivation for refinancing a loan, as this might determine what kind of refinance can best benefit your particular financial situation – and whether or not now is the best time to refinance.
Sadly, many people in the US have lost their job or feel that this is a sizeable risk, so if you’re looking to refinance because you want to increase your monthly cash flow, you’re certainly not alone. Check with your lender to see if you are eligible to refinance your loan and extend to a longer repayment term, which will offer lower monthly payments and free up some cash. Do be aware that depending on the interest rate of your original loan versus the refinanced loan, this could mean that you pay more interest in the long run – and you’ll still need to pay closing costs on the new loan.
If you’re currently paying a higher-than-average interest rate, you might be understandably curious to know if refinancing will help you take advance of the current, record-low federal interest rates. It’s a good idea to speak with a lender and discuss the specifics of your situation, before making a final choice. Do be aware that because so many people are attempting to refinance at the moment, some lenders may be overwhelmed with requests, which can lead to delays in the process.
Final thoughts
Refinancing can be a powerful way to reduce debt or shift the terms of your loan to be more manageable. If you’re thinking about refinancing in the midst of the current pandemic, be sure to do your research, speak with a qualified lender, and find the solution that’s right for you.
