With experts predicting that mortgage rates will rise as 2017 progresses, there’s no time like the present to refinance your mortgage. While you can stand to save thousands over the life of the loan by refinancing, it’s important to ensure you get the lowest rate possible to make the cost worth your while. Try these 10 tricks to get the lowest mortgage loan refinance rate.
According to Forbes, the mortgage industry uses a tiered credit system to determine your rate. While you can qualify for a refinance with a score as low as 620, the best rates are reserved for those with rates of 760 or above. If your score is lagging, take steps to raise it, such as lowering the amount of debt you carry, before refinancing.
2. Get an Appraisal
The loan-to-value ratio of your mortgage–how much you owe compared to the value of the property–also plays a role. The lower the loan to value ratio, the better the mortgage rate. Getting an updated appraisal of your property can let you know where you stand.
3. Shop Around
Once you have your credit score and appraisal in hand, it’s time to start looking for the best rates. Credit unions are often the best bet for members, but it’s also important to get rates from banks and online lenders. If you’re not sure where to start, ask friends or real estate agents for referrals.
4. Do Your Research
The Washington Post recommends checking the weekly data released by Freddie Mac and the MBA, each of which surveys lenders on the interest rates locked by buyers during that week. The MBA, which tracks refinance rates as well as purchase rates, should be of particular interest. Compare these rates to those you’re being quoted by lenders.
5. Time-Limit Your Search
According to Nerd Wallet, you should confine your rate search to a two-week window. After 14 days, additional credit inquiries from mortgage lenders count as a separate credit pull, which can lower your score.
Once you’ve settled on a quote, this basic equation from Bank Rate can help you determine if it makes financial sense to refinance. Divide the closing costs you’ve been quoted by your chosen lender by the monthly savings you’ll receive by refinancing. The result is called your break-even point, which is the number of months it takes for your savings to equal the amount it costs to refinance. As long as the timeframe to break even is shorter than the amount of time you plan to stay in your home, refinancing is the right move.
7. Consider Closing Costs
For a refinance, these fees are usually about 2 percent of the loan amount. If you don’t have the money saved, these can often be rolled into the cost of the loan–but make sure to account for those costs when doing the calculation in #6.
8. Take Loan Term into Account
While opting for a shorter loan term will increase your monthly payments, if you can afford it this is one of the best ways to lower your interest rate. In addition, you’ll pay much less interest over the life of the loan.
Some lenders advertise refinance programs where they pay your closing costs. If the lowest interest rate is your goal, though, these programs should be avoided as they often carry a rate of up to 1 percent higher than a regular refinance.
10. Avoid Cash Out Refinance
While these programs are advertised as a way to dip into your home equity, they aren’t usually a good financial move if you’re using it to pay off credit card debt. The reason? You’re converting unsecured debt to secured, which means your house is now on the line or your consumer purchases.
By following these 10 steps, you’re set to get the best possible interest rate on your refinance.