Dave Ramsey reveals the interest rate, mortgage truth you shouldn’t miss

When the Federal Reserve cut interest rates by 50 basis points on September 18, many Americans turned their attention to their mortgages and the effect the move could have on their home finances.

And bestselling personal finance author and radio host Dave Ramsey now has a major tip for those looking to make the most of their home buying investment.

Don’t miss the move: Subscribe to TheStreet’s free daily newsletter

In early October, rates on 30-year fixed-rate loans nationwide averaged in the 6 percent range. Some sources have even reported some offers as high as 5.7%.

Then a report published by the Mortgage Bankers Association of America began to show encouraging evidence of consumer interest in home buying.

And experts predict a continued pace of acceleration in the housing market if the Fed cuts interest rates when it meets again in early November, a move many expect.

As lower mortgage rates inspire increased activity in home sales, momentum numbers will also return for another real estate maneuver: refinancing.

Ramsey now weighed in on his thoughts on whether — and if so, when — homeowners should take advantage of falling mortgage rates as an opportunity to refinance their loans.

Related: Student loan forgiveness to give millions of Americans a stimulus payment

Ramsey explains when is the right time to refinance your mortgage

Refinancing a mortgage is the process of replacing the existing one with a new mortgage that should offer a lower interest rate.

If you can get a lower rate, Ramsey suggests moving forward with a mortgage refinance, provided you plan to live in your home long enough for it to result in significant savings.

If that’s the case, Ramsey offers six steps you might consider on your way to a successful refinance move.

More about Dave Ramsey

• Ramsey unveils new Social Security payment warning
• Dave Ramsey discusses a big money mistake to avoid
• Ramsey has a major caveat about retirement, 401(k), Social Security

The first step is to take a hard look at the numbers and make sure a refinance makes financial sense. Find out how much you’ll save per year and exactly what you’ll pay the lender to close the deal. If this results in a considerable amount of savings, then the decision to refinance is most likely the right one.

The second step, Ramsey says, involves shopping around to find the best interest rate available.

But the third step is just as important. This involves making a final decision regarding the choice of lender. In addition to finding the lowest rate, consider how much you’ll be charged in closing costs. Understanding both factors and comparing the results will reveal the best deal.

A man is seen sitting on a couch and typing on a laptop. Personal finance coach Dave Ramsey explains the steps to take when considering refinancing your mortgage.

Shutterstock

Ramsey clarifies the final steps for a successful mortgage refinance

Then, as a fourth step, when you’re sure you’ve found the refinancing plan that works for you, be sure to immediately lock in the rate you’ve decided on.

Guaranteeing your rate might cost a little money, but it’s worth the price because you’d hate to see your rate go up after you think you’ve found the one you want.

Related: Dave Ramsey Has New Words About Retirement The Long-Missed 401(k) Plan

Going through the underwriting process is the fifth step. This simply means proving to the lender that you have the means to guarantee the loan. The lender will take the opportunity to look into your financial history, bank accounts and pay stubs to check your financial credibility.

And the final step is to close the new mortgage. This process involves signing all documents and paying closing costs. It generally takes a month or two.

Paying a lower mortgage interest rate this way can be a smart financial move.

“This is the most common reason people refinance their mortgage, and it’s often a great idea,” Ramsey wrote.

Related: Veteran fund manager sees world of pain coming for stocks