Will refinancing help credit score more now than later?
We have an first arm that is fixed at 6.5% for the next year. with a payment of 555.00 month, 30yr term. A 2nd with 11% pay of 205.00 month with a balloon due in 20yrs. No escrow. We have less than perfect credit at this time, old stuff nothing in last 4 yrs. Currently being offered 8.9% for 40 yrs. with pay of 911 monthly. Loan guy says that in a year this will help credit score go up and qualify for better loan. My ? is why not wait for the next year while the pay is only 760. then get refinanced? Why waste money on a loan that will need to be refinanced anyway? He says this will help score. What to do?
Public Comments
- Report him to his boss. You are absolutely correct. Plus how can his idea increase your credit score??? It won't. The only thing the credit reposrting agencies see is timely payments, they don't care what your interest rate is. The only person refinancing would be better for is the salesman who gets a commission. Unless the loan is beneficial to you, his underwriting department shouldn't even accept it. This fallls under the guidelines of 'Predatory Lending' and he could be in some serious shit for it.
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- Your question is a little confusing but here is how I understand the credit to work. The longer you pay on something and do not miss a payment the better your credit is getting. If you wait a year to refinance you will have a better credit score then than you do now. (Assuming you are not deliquit and pay everything as required, which includes not haveing to call and ask to pay at a later date). Now the market is slowing down and interest rates are going up. So that means if you wait the price may be down and the interest may be up. The bonus to interest rates being up is that they will eventually go back down and the low price you may have paid for the actuall item will still be low. But if you are just refinancing then you may want to try and refinance before rate go up more. So hope that helps.
- I don't see why it will help your score. Everytime you refinance, you are paying origination fee, and other cost. The loan guy gets paid for writing a loan so, there is his incentive. New loan will temporarily bring down your score actually. If he is the only person you are talking to, I wouldn't go with him. Wait till next year. Your score will if nothing stay the same or goes up. The interest rate is the only concern. But I don't think it will jump so fast that you have to hurry up and get the loan NOW.
- First of all, moving from a rate of 6.5% to 8.9% is a huge jump. So huge in fact that it doesn't make sense to take a rate that high just to settle into a longer term mortgage. You might want to do your own research and see exactly why the rate is so high. Do you know your credit score? You should if the "loan guy" is quoting you specific rates. It doesn't make sense to refinance the loan now if your score is so low that you simply can't qualify for anything except a nearly 9% rate. A smart homeowner would wait until their credit score improved, resulting in a lower available interest rate. And why would the "loan guy" put you into a 40yr loan if it's only for one year before he refinances you again. If he truly wanted to put you into a loan program for 1 year, and then refinance you again, he'd be smart to put you into something like a short-term adjustable rate mortgage at a much lower rate. Sounds like your current "loan guy" doesn't know what he's doing, or is simply just trying to get the deal done anyway he can. Twice for that matter! Your credit will improve over time by reducing your outstanding debt and continuing to make on-time payments. I'm sure your credit score will go up in a year if you are responsible with your credit, but it makes zero sense to get into a long term fixed rate mortgage at nearly 9% and then refinance a year later.
