Mortgage rates are going up. Read this before you refinance.

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Mortgage rates are on the rise after nearly a year of record lows, offering a boost to homeowners who want to refinance but haven’t yet done so.

Does it always make sense to call your lender and file a claim? It’s time to figure it out. Here are some questions to consider:

What rate makes sense to me?

First, find the difference between your current mortgage rate and the potential savings from a refinance offer. The rate of a refi will vary depending on the particular owner. Lenders take credit history, income, and home equity into account when assessing applications.

The average rate on a 30-year mortgage fell to 3.05% for the week of March 11. according to Freddie Mac. While this is higher than all-time lows reached last summer, homeowners with rates above 4% could still benefit from refinancing.

Consider how many months it would take you to recoup the costs of closing a refi, as well as how long you will stay in that house. If you can recoup the closing costs within two years and plan to stay in your home longer, the interest savings mean the math will likely work in your favor.

What if the closing costs are too high?

If the potential savings from a new mortgage don’t recoup closing costs, like title insurance, state taxes, appraisal fees, etc.

The national average for associated refinancing fees is nearly $ 3,400 with taxes, according to ClosingCorp, a company providing data on residential real estate. That number has not changed significantly in the wake of the pandemic, said Bob Jennings, chief executive of ClosingCorp.

In some cases, lenders are forgoing assessments – and the associated costs – due to concerns about social distancing. Check with your lender about the research process to make sure it doesn’t lead to an underestimation of the home’s true value.

I have an adjustable rate mortgage. Is it time to switch to a fixed rate?

Those with variable rate mortgages might look to refinance into a fixed rate mortgage so they can lock in those ultra low rates.

When considering switching from an ARM to an FRM, first check where the loan is in terms of the adjustment cycle and think about how often your rate is adjusting. Most only do this every six or 12 months, giving some homeowners more flexibility when it comes to exploring refinancing and saving for potential closing costs.

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Did you get or refinanced a mortgage during the pandemic? What was your experience? Join the conversation below.

“A lot of borrowers don’t want the uncertainty,” said Malcolm Hollensteiner, mortgage production manager at Sandy Spring Bank in Olney, Md.

Because rates have remained so low and are not expected to skyrocket overnight, some homeowners might decide to forgo the associated refinancing costs.

I have a 30 year fixed rate mortgage. Should I shorten this to 15?

According to Sandy Spring Bank’s Hollensteiner, many homeowners are considering changing their loan term from a 30-year fixed-rate mortgage to a 15-year loan.

It won’t reduce your monthly payment, but doing it now may mean that “that payment won’t be much higher than what they’re paying today,” he said. “So if they can save 12 years on the loan, that’s a huge interest savings over time.”

How will my home equity affect the situation?

The difference between the value of your home and the remaining mortgage balance is the equity you have in the home and a key number to keep in mind when pursuing a refinance.

Those who want to refinance to eliminate private mortgage insurance must have home equity equal to 20% of the value of the home.

Mr Hollensteiner said some homeowners could benefit from a reassessment that shows how the booming real estate market has increased home values. Some homeowners might find they have more equity than they previously thought.

Should I consider a cash-out refi?

Refunds allow borrowers to essentially swap their current mortgage for a new mortgage with a higher balance and, potentially, a lower interest rate. This allows a homeowner to pay off the old mortgage and still have cash flow.

The difference between your mortgage balance and the value of your home is then paid into your bank account, which some homeowners use for home renovations (increasingly spend more time at home), debt obligations or other financial objectives and responsibilities. Refusals of withdrawals have now reached their highest levels since the 2008-09 financial crisis.

Ask yourself what you would do with the money. It may be a good idea to complete home improvement work that increases the resale value of your home. Or, if you pay off your debts and improve your credit score. But if the extra money isn’t put to good use, consider a refinance option that lowers your payments and shortens the term of the loan.

How do mortgage points affect a refi?

When lenders talk about mortgage points, think of them as “prepaid interest,” said Shant Banosian, loan officer at the guaranteed rate mortgage lender. These are additional costs added to the front of the loan to lock in a lower rate.

This increases the closing costs, but it might be worth it if your # 1 goal is to get a lower rate and save on overall interest. “If someone is going to stay in their house for 30 years and it takes two years to recoup those costs, why wouldn’t you want to save money for 28 years? he said.

How quickly do I have to act?

Some three million homeowners are expected to refinance their mortgages this month, according to forecast data from

Black Knight Inc.,

a provider of mortgage technology and data. But make sure that a refi decision is right for you. Remember that rates can always drop again in the future.

“I don’t want people rushing, and I don’t want them chasing a bottom or a rate,” said Gordon Miller, president of Miller Lending Group. “Do the math. If I had a dime every time someone said, ‘We’re never going to see such a low rate again,’ I would retire after three years.

The US mortgage market involves some key players who play an important role in the process. Here’s what investors need to understand and what risks they take when investing in the industry. WSJ’s Telis Demos explains. Photo: Getty Images / Martin Barraud

Write to Julia Carpenter at [email protected]

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