Trying to decide if you should refinance your home? Are you looking for the best mortgage refinance rate? Hoping to get a lower mortgage refinance rate? These words can be scary for some people who haven’t refinanced before. It can also be a tricky process to find the best rates.
That’s why it’s important to do your research and find the lowest rates before getting locked in. The best place to start is online, where you can shop around, find expert advice, and get the know-how.
Luckily, if you’re looking to find the lowest refinance rate, you’ve come the right place. This blog will cover the top 10 tips to help you lower your rate and better understand how refinancing works.
Top 10 Tips to Lower Your Mortgage Refinance Rate
Step 1: Get Your Credit Score Up
The number one way to get a lower mortgage refinance rate is to get your credit score up. Generally, lenders require a credit score of 620 to 640, on the low end. A score that low will lead to higher mortgage rates. You want to shoot for a score of 740 or higher in order to really make a dent in your refinance rate and really qualify for the best rates available.
The best way to raise your credit score is by making all of your payments on time, paying down existing balances, and even looking for errors in your credit score report. Credit score errors occur more often than people would think, and if caught, they can make a significant impact to your score.
Step 2: Know the Rates, Play the Field
Rates change often and abruptly. It’s important to stay informed and know what fellow borrowers are being offered. Once you know the rate offered to another borrower, you can use it as a negotiation factor to lower your mortgage refinance rate. It’s also okay to talk to multiple lenders and get multiple interest rates to make sure you’re getting the best rate.
Plus you should always do your research. Look up what the average interest rate should look like. Keep in mind that rates are dependent on your personal situation and credit history, but it doesn’t hurt to get a feel for the market and what the typical refinance rate should be.
Step 3: Use Your Credit Card and Pay It Off
It’s important to use your credit card for small purchases and pay it off. If you use a smaller percent of the credit you have available, it will lower your credit utilization ratio, which has the ability to lower your interest rate.
Then be sure to pay off all your balances every month, showing how you can responsibly and dependably manage your debt. This will also help you enhance your credit score and get a better rate.
Step 4: Get All Documents In Quickly
If you respond quickly to questions and requests for documentation then you can avoid paying for extended rate lock period. This occurs if the paperwork takes a while to submit.
It’s recommended to stay on top of all documentation and requests. Some even say you shouldn’t leave the city while going through this process so you’re readily available to submit everything you need.
Step 5: Go For A Shorter Term
A shorter loan term means a lower interest rate. However, the amount you pay will be higher since you will be paying off the loan quicker. If you’re able to quickly make your payments then a shorter term will definitely be beneficial for you.
Don’t choose a shorter term if you don’t think you’ll be able to make the payments on time though. Go with the term length that makes the most sense. Also choose which payment plan you would like to go with before seeing a lender because you may qualify for much more.
Step 6: Speak to a Loan Officer
Loan officers are specialists in all kinds of loans including consumer, mortgage, and commercial. They act as the liaison between you and the institution to help you find the best plan that will meet your budgetary goals.
Plus they have a pretty good idea of when rates will go up or down depending on economic news, announcements, and even government reports. They can help you pick the best rate and lock in that rate before they fluctuate.
Step 7: Raise Your Home Equity
Those that have equity within the 10-15% range will have an easier time when it comes to refinancing. So make sure to look into your mortgage documents and if needed, speak with a realtor about your neighborhoods comps.
Also the loan-to-value (LTV) ratio for your property has the ability to make a significant impact on your refinance rate. A LTV ratio is the ratio of your loan versus the value of an asset purchased. If you have a high loan-to-value ratio then it will cause your interest rate to go up. So check your ratio and see if it’s worth increasing your home equity.
Step 8: Plan Ahead
It’s important to know how you will pay for your refinance and how much you’re willing to pay. During closing, there could be lender fees or other chargers that you need to pay. These are generally included with the rest of your balance.
At this time, you have the option to choose “no-cost” refinance, which is when your lender pays the fees and you pay a little more for your interest rate. It always helps to plan these things out before you get to that point to find the best option for you.
Step 9: Buy Down the Rate
Look into mortgage discount points. These points are generally offered by mortgage lenders to help you lower your mortgage refinance rate. The points are fees that are paid to the lender directly during closing in order to reduce the interest rate.
This strategy is also known as “buying down the rate” and it helps to reduce the cost of your monthly mortgage payments. Every point will cost 1 percent of the cost of your mortgage, meaning it will cost $1,000 for every $100,000.
Step 10: Use a Refinance Mortgage Calculator
In order to help you determine the amount you could save, a refinance mortgage calculator can come in handy. This calculator will go through a series of questions to find out where you are financially. Then it will determine the how much money you can save by refinancing.
This is the perfect tool to use before meeting with your loan officer or lender, so you know what you can expect walking into things.