You’ve determined that you want to refinance your mortgage loan to take advantage of lower interest rates. So, what’s next? There are steps you can take to get the best deal and maximize the benefits of refinancing your mortgage. Here are five tips to help ensure you’ll get the best deal.
1. Build up your Credit Score
Your credit score will not only determine whether you qualify for a loan, but it will also affect the interest rate you receive. It could make more than a 1% difference in the interest rate based on your score. This amounts to a considerable amount of interest that you’d be paying over the life of the loan.
Get a copy of your credit report from one of the three major credit bureaus: Experian, TransUnion, or Equifax. If you have high balances on revolving accounts such as credit cards, work on paying those debts down to help improve your credit score. Make sure you are paying your bills on time each month and consider setting up auto-pay.
2. Look at the APR, Not APY
When looking around at interest rates on a refinance mortgage, you will want to pay close attention to the annual percentage rate (APR), the APR incorporates all your expenses such as closing costs to give you a more accurate view.
3. Know What Your Home Is Worth
Having equity in your home is one of the most significant determining factors in what your interest rate will be. The difference between what your house is worth and what you owe equals your home equity, or a loan-to-value ratio (LTV). Lenders determine how risky the loan is by how much equity you have built up. As a result, they will charge you a higher interest rate.
4. Get Multiple Rate Quotes
Shopping around for the best deal is essential with refinancing. Different lenders have different requirements and underwriting procedures, so the rates and terms could vary. Ask for a quote from multiple lenders and don’t be afraid to haggle over fees. Some lenders might be willing to drop some of their fees or offer a credit towards certain costs.
5. Figure out Your Financial Goal for a Refinance
Every person will have different financial reasons for considering a refinance mortgage. Know what your goal is so that when you are weighing the options, you can choose the loan that best fits your needs. Some financial goals could include:
- Home improvements or paying off debt - You might be able to tap into your home equity. If you’ve paid down your mortgage, or your home has increased in value, a cash-out refinance is one way to access equity. You can use the money to pay off higher-interest debt or pay for home improvement projects around the house.
- Lower your mortgage payments – When your interest rate decreases, the interest that you pay over the life of the loan will save you thousands. Additionally, your monthly mortgage payments will also go down.
- Pay your loan off faster – While people prefer to go with the lower payment of a longer-term mortgage, you could look at paying off your loan more quickly. The interest on shorter terms tends to be less. If your income has increased, you may be able to afford the higher payments.
When you are ready to refinance your home, give our experts a call at 855-465-0753 to get started.