How to Get the Best Deal on a Mortgage Refinance
- by Contributor
- 5 months ago
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When considering refinancing their mortgage, many homeowners focus on the interest rate itself, neglecting to look at the length of the loan. If you refinance while mortgage rates are far higher than on your current loan, that can mean higher monthly payments, and substantially more money down the line. If you are already on a loan, it is not too late to raise your credit score and qualify for better rates by refinancing.
Every auto loan refinance application could lower your credit score a few points, making it harder to qualify for the loan.
Similar to making a large down payment on your mortgage, having a higher credit score could help you qualify for better rates and lower monthly payments. Keep in mind, if you have lower credit than you did when you took out your current mortgage, you might not be eligible for the same favourable rates you did previously.
If you can get a lower rate now than when you took out the mortgage first, you might want to consider refinancing. Keep in mind, while those lower rates are tempting, this might not be the right time for all homeowners to refinance.
Low rates are great news for everyone looking to purchase a home – but if you are already holding onto your mortgage, rates at such historically low levels make this an ideal time to think about refinancing, too. If you originally got a mortgage at 5 percent, and learned that you could refinance into one at 4 percent, you may decide it is worth the expense and hassle to refinance in order to take advantage of this lower rate. Even if rates are low now, it is wise to shop around and explore multiple mortgage lenders before refinancing an investment home loan.
If you are planning on keeping the loan for a long time, getting the lowest mortgage rates may matter more than paying the lowest closing costs. If you are planning on rolling your closing costs into your loan, you may end up paying more every month for a lower-rate, higher-closing-cost loan than for one with a higher-rate, lower-closing-cost loan.
For instance, if you have $200,000 in your new loan balance, and decide to purchase a point to reduce your rate by 0.25 percent, that would cost you another $2,000 at the closing table.
Note that the mortgage points costs are generally built into the amount of your loan, which allows you to reduce your interest rate without increasing the up-front costs. Reducing your mortgage term also lowers the total amount of interest you pay over the life of the loan. Not only do you have less principal to repay — that is, the amount of money you owe on your loan, not including interest — but you also will pay less interest over the life of the mortgage, because that is calculated based on how much principal is owed.
A shorter term can give you a lower refinancing rate, but will more than likely also raise your monthly mortgage payments.
You are probably going to pay higher interest rates to secure a refinance with no closing costs, meaning that your mortgage payments are going to be higher. When refinancing, you are paying off your existing mortgage with a new mortgage loan, which comes with new rates and terms.
You can also refinance mortgage the other way, from long-term to short-term. When refinancing your fixed-rate mortgage, you can also choose to adjust your loan’s term length to fit your needs more closely. Shorter-term mortgages, like 15-year fixed-rate loans, may help you pay down the mortgage more quickly, while paying less in total interest.
If interest rates are falling, switching from a fixed-rate loan to an ARM–which typically has lower monthly payments than a fixed-term mortgage–can be a smart financial strategy, particularly for homeowners who are not playing for longer than a few years. Using the equity in your home may be better than taking out a personal loan or loading up on credit cards, since cash-out refinancing typically has lower interest rates than most credit cards.
If you are putting less than 20% down on a traditional loan, having great credit also makes you eligible for lower mortgage insurance rates. Your credit score, equity in the house, your debt-to-income ratio, and your type of loan — for instance, fixed-rate or adjustable-rate mortgage — are the primary factors affecting your refinancing rates. You can get a better rate by improving your credit, comparing your available rates, shopping around for better terms, and paying your closing costs upfront.
Saving means being realistic about how long you expect to live in the house, getting your credit in order, finding the best refinance rates, and saving money wherever possible, like inspection fees and closing costs. Whether it is making more cash available to do house repairs now, or for a family road trip down the road, refinancing can be a great way to save. Getting your finances in order and choosing the best lender can help you land the lowest possible refinance rate – and, in the long run, save thousands.
Here are seven ways you may be able to lower your interest rate and lower your mortgage payments, either when you sign or over the life of the loan.