Refinancing a mortgage makes a lot of sense—if the math is in the borrower’s favor. If they can reset their loan at a lower interest rate than what they’re currently paying, they may be able to:
Refinance now and save big
Take cash out at closing to cover a home improvement project, pay off debt, or fund a major purchase
Enjoy more financial flexibility
While mortgage rates have been trending higher, that doesn’t mean refinancing is off the table for everyone. Borrowers may want to lock in a 30-year rate if they currently have an ARM, eliminate mortgage insurance, or cash out some equity (mortgage financing is often the cheapest form of borrowing available).
What the research found
The average national FICO credit score recently hit a new all-time high: 704. That’s good news for borrowers, because higher scores qualify for better loan rates and terms. FICO reports that the average score hit bottom, at 686, about 10 years ago.
FICO scores vary from 300 to 850. A score of 704 is considered “good”; scores between 740 and 799 are “very good”; and a score of 800 and above is regarded as “exceptional.”
What’s more, home equity is on the rise, too. CoreLogic reports that home equity increased in quarter 2 of 2018 by 12 percent ($981 billion).
Increased home equity and better credit scores could qualify you for a better loan than the one you currently have.
Why FICO scores are up
Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College, isn’t surprised by the rise in average credit scores.
“Rising wages, lower unemployment, and the passage of time have helped,” he says. “Delinquencies and collection efforts that occurred during the Great Recession have rolled off the credit records for many.”
Another factor has helped matters, too: The three major credit reporting agencies began excluding all tax liens from credit reports earlier this year. That’s a plus for borrowers.
“Excluding this information from a credit report makes it harder for lenders to assess the riskiness of a borrower,” says real estate attorney and Florida International University instructor Suzanne Hollander.
In addition, consumers have helped their own cause.
“People are more aware of the importance of credit and how to have healthy credit,” she adds.
