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If you want to get the best possible refinance rate on your mortgage, you need to focus on building your credit. Having a good credit score can score you the best rates. Also, you want to get several quotes beforehand.
With mortgage rates being so low, it’s not surprising you’ve decided to try to score the best refinancing rate of your lifetime. If you’re on a mission to do so, here are some of the tips you can utilize to successfully do so.
1. Monitor your Credit Reports
One of the top things you need to be doing is monitoring your credit reports. You will find errors occurring more often than you may think. A lot of experts see mistakes on credit reports all of the time. Alvaro Moreira ran the credit report of a client that had a state tax lien and a charge-off on the report that the client had never known about. She also detailed a time when a client had a very low score of around 623. Once all of the mistakes were effectively reported and wiped, the score jumped 37 points and they ended up saving a total of $95 every month on their outstanding home loan.
2. Keep Your Credit Card Balances Low
A good thing to try to do is to keep your credit card balances low. Ideally, you want to try to keep your balance under 25% of the total credit available to you. It’s always a good idea to ask any credit card issuers to increase your balance whenever possible. That way you can utilize less of your available credit without having to change your spending habits. This can minimize your credit utilization and allow you to get a better score and interest rate.
3. Don’t Stop Using Credit
A lot of people think credit cards are bad. While abusing credit cards and spending money you don’t have is bad, the practice of using credit cards responsibly isn’t. Using credit cards responsibly can end up helping you more than you might imagine. Making small purchases on your credit cards here and there can be a very effective way to improve your creditworthiness to lenders. By paying your credit card bills on time, you show that you are responsible to lenders and it helps to improve your score.
4. No-Cost Loans Aren’t Always What They Seem
There are a lot of gimmicks in the loan industry. When something seems like it’s too good to be true, it typically is. There isn’t such a thing as a “free lunch.” Every lender will charge a fee. It doesn’t matter if they require it upfront or not, they are going to get their cut. You will find some loans having closing costs added on to them. The senior vice president of mortgage lending at Guaranteed Rate in Chicago, Joe Burke, noted that “paying to refinance closing costs [out of your pocket] can end up decreasing your interest rate.”
5. Go For Something Shorter
Going for a longer-term loan isn’t always going to be the best option for a lower rate. For instance, if you have already gone ahead and paid out 7 years in a fixed loan of 30 years, expanding it another 30 years might not be wise. Instead, you can consider moving your 30-year mortgage to one that’s half at 15 years and it can lower your mortgage rate and minimize any interest payments over the lifespan of the loan.
A lot of people don’t know this and they always look to expand the term length of their loans. A lot of times, refinancing to a shorter loan is going to allow you to lower your interest costs by a significant amount without adding too much to your monthly payment making it a very intriguing strategy.
6. Don’t Take Cash Out
A lot of people look to take cash out of their homes. A cash-out refinance will help you draw some cash out of your home’s equity. The biggest issue with this is the fact that it can increase your loan-to-value ratio which will typically increase your interest rate.
7. Lock It In
There are specific things that can influence interest rates on the macro side of things. You want to discuss this with your loan advisor to figure out if it would be in your best interest to lock your rate in. Asking about a mortgage rate lock is a good way to prevent any rising in rates to cause you to have to spend more in interest. This lock can keep you at the fixed rate while the loan is still getting processed which can take a long time.
8. Factor In How Long You Plan On Staying
A big thing that every homeowner needs to consider when they are buying a home is how long they plan on living in it. This is a big question that needs to be answered. Unfortunately, it’s also one a lot of buyers gloss over. It can impact your rates dramatically. For instance, say you are only planning on living somewhere for 5 to 10 years. In this case, an adjustable-rate mortgage that has an intro rate lower than a fixed-rate loan is likely to be a cheaper option. Whereas, if you were planning on staying there for a very long time, that wouldn’t be the case.
9. Compare Rates
You never want to go with the first lender you get a quote from. You always want to do some comparison shopping with different lenders. This is the single best way to ensure you are getting the best possible rate. Even getting one additional rate can end up saving you nearly $1,500 over the lifespan of the loan according to Freddie Mac. When you do comparison shopping with 5 different lenders, that number can reach nearly $3,000. A lot of rates that are advertised to be low have discount points built into them which you will be responsible for paying for upfront.
However, the advertised rates that do have these built-in will get you lower interest rates. Thus, for anyone lending, it can be used to drive more business. Whereas, a borrower can leverage this as part of their loan strategy. You would need to use your situation to see whether or not discount points would save you money over the long haul. You want to look at your monthly savings and see how long it would end up taking to recoup any of the fees you have to pay out upfront to realize the savings.
You always want to look at the APR when you are comparing your options. The annual percentage rate of your loan will include the interest rate that you have to pay on it and all of the outstanding fees. You will need to go through and complete applications for all of the lenders you are looking to get quotes from. They will use that information to calculate an APR on it.