Anyone who plans on refinancing a home should look into doing it before December 1

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective.

  • The Federal Housing Finance Agency is imposing a 0.5% refinancing fee that kicks in December 1, 2020.
  • You won't have to pay the refinancing fee if you lock in your rate before December 1.
  • You'll be exempt from the fee if your refinanced mortgage is under $125,000.
  • Before rushing to refinance by the deadline, consider whether you'd save more money in the long run by waiting so you can improve your refinances and get a lower rate.
  • Policygenius can help you compare homeowner's insurance policies to find the right coverage for you, at the right price »

Mortgage refinance rates are at historic lows right now. It may seem like a good time to refinance your home, but do you need to rush?

Maybe.

The Federal Housing Finance Agency has given Americans a reason to consider refinancing sooner rather than later: Starting December 1, you'll pay a 0.5% refinancing fee.

You'll pay the refinancing fee if you lock in your rate on December 1 or later

If you refinance on December 1 or later, you'll pay 0.5% of your loan principal at closing. But if your refinanced mortgage is under $125,000, then you don't have to pay this fee.

You don't have to actually close on your refinanced mortgage by December 1 to avoid the charge. Christian Wallace, Head of Sales at Better.com, told Business Insider that you can get out of the fee as long as you lock in your rate by December 1. You can decide to lock your rate once you're positive you want to refinance.

"Some people lock the same day they put in an application," Wallace said. "Or it may take a couple of days because they're trying to make a decision on whether they want to refinance or not."

The new refinance fee isn't the only charge to think about

Beating the December 1 deadline and locking in a low rate aren't the only two things to consider before refinancing your home.

You shouldn't necessarily refinance with the same lender who gave you your original mortgage just because you're in a rush to refinance before December. You'll want to find the lender who will offer you a low rate and charge you the least in fees, if possible.

Wallace recommended homeowners think about all the other fees involved in refinancing, like appraisal fees, credit check fees, and title fees. Not all lenders charge the same fees. You may want to ask a few lenders for itemized lists of fees so you can compare and contrast before refinancing.

Don't rush if your finances aren't in order

Yes, rates are low right now. And yes, you will pay a fee to refinance as of December 1. But if your finances aren't in a good place, then you still might want to hold off.

Lenders offer lower rates to people with stronger financial profiles. If you have a high credit score, low debt-to-income ratio, and/or sizeable down payment, then you could enjoy a low rate. But if you still have some work to do, then you could end up paying a higher rate for years — which could ultimately cost you more than the 0.5% refinancing fee.

If possible, try to improve your credit score, pay off some debt, or save more for a down payment before December 1 so you can get the lowest rate. You'll probably want your credit score to be at least 700 and your debt-to-income ratio to be 36% or lower. There isn't a strict rule about how much you'll need for a down payment, but a larger amount could result in a lower rate.

But if your finances still aren't where you'd like them to be by the end of November, then it might be better to postpone until you're ready. Waiting could save you money in the long run.

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.

Source: Read Full Article