The coronavirus has caused interest rates to plummet. That has led many homeowners to refinance their mortgages. In fact, according to a recent report, a whopping 75 percent of mortgage applications during the last week in April were for refinances. However, many applicants are being rebuffed, as lenders are tightening their standards.
The main reason lenders are cutting refinancing off is that they’re preparing for the worst. In the coming months, many people will find themselves unable to pay bills and more. There will likely be many loan defaults. Lenders are protecting themselves a bit by increasing the minimum credit score required for a refinance or new loan. According to Money, Bank of America raised its credit score minimum from 660 to 720, Chase now requires a score of at least 700, and Wells Fargo upped its minimum score for a home equity line of credit to 720.
The increase in minimums means that if you’re considering a refinance, you need to first make sure that your score is as high as possible. Pay bills on time and keep your credit utilization ratio low. Check your credit report for any inaccuracies.
Once you’re confident that your credit score is as high as possible, consider other factors. Will your new mortgage reduce your monthly payment? Will it help you build equity in your home more quickly? Do you plan on living in this house long enough to regain the costs of refinancing?
If a refinance will save you cash and makes long-term financial sense, go ahead with the application. Just be ready for some tough sledding ahead.