Monday’s Money Medicine: Refinancing Your Mortgage, Saving Money and More

A weekly dose of tips to help you manage your money

Two years ago, I bought a three-bedroom, two-bathroom house in the far northwest part of Austin, Texas. The interest rate wasn’t outstanding — 4.625% — but it wasn’t bad, either. It was pretty much the best rate I could get after being a freelancer for less than two years; freelancers face a tougher time qualifying mortgages because they don’t receive regular paychecks.

Since buying my house in August 2018, I’ve watched mortgage rates tumble. A check of shows mortgage refi rates as low as 2.5%! Given the almost unreal state of the refi market, I decided to dip my toe into the borrowing pool. I was able to score a preliminary 3.25% rate, well below the current 4.625%. So, I’m moving forward with refinancing my mortgage.

If you’re weighing a mortgage refi, here are three pointers to keep in mind.

1. Shop around.

Check rates with several lenders to get the best rate. If you submit an application with a lender, it’ll show up as a “hard inquiry” on your credit report, and that can temporarily bring down your credit score. Remember that all credit inquiries for a mortgage will be lumped together as one if each happens within the same 14-day period.

2. Work on improving your credit.

Before I submitted mortgage applications, I worked on reducing my credit card balances. Why? Credit utilization — your balances as a percentage of credit that’s available to you — typically makes up 30% of your credit score. A higher credit score usually leads to a lower interest rate, which can save you money in the long run.

3. Put the credit cards on ice.

While you’re shopping for a mortgage refi and until you’ve closed on the loan, don’t run up big purchases on your credit cards. That will raise your credit utilization ratio, and perhaps will bring down your credit score and decrease the odds of gaining a lower interest rate. 

Furthermore, as your application is working its way through the approval process, the lender will closely monitor your credit reports. Increasing your credit card balances or opening a new credit account before you sign on the dotted line will raise a red flag with the lender.

Here’s to your financial health!

Your Money Doctor,

John Egan

Here’s a curated collection of money prescriptions that can improve your financial health. (Full disclosure: Some of these links might be from websites that I write for. They have not paid me to include these links.)

How to Save Money Every Month (written by me!)

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The 6-Step Method That Helped This 34-Year-Old Pay Off $30,000 of Credit Card Debt in 1 Year

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