In the hunt for the lowest mortgage refinance rate, there are some things you can control and some you can’t. Rates moving up just when you’re about to refi? Can’t control that.
But there are at least 11 things you can do to get the best mortgage refinance rate.
Get the credit you deserve
The best way to earn the lowest rate on a mortgage refinance is to knock out the dents in your credit score and polish it up. Some steps can be as simple as making timely payments on your existing debt and perhaps paying down some balances. Other moves, like these three, take a bit more effort:
1. Look for errors in your credit report
“The other day, I ran credit for someone who had a state tax lien and a charge-off,” says Mary Anne Daly, senior mortgage advisor for Sindeo. “They said, ‘This isn’t mine. I don’t know anything about this.'” Daly says credit report errors happen more often than you might imagine.
Daly also cites clients who had a 623 credit score. Their credit report had mistakes, and the customers wondered if the improvement in their score would be worth all the effort to correct them. By wiping the errors from their history, their credit score improved to 660, and the borrowers saved $95 a month on their home loan.
2. Keep credit card balances below 25% of your available credit
Daly also says to consider asking your credit card providers to increase your available credit. Using a smaller percentage of your available credit lowers your credit utilization ratio and can earn you a better interest rate.
3. Don’t quit using consumer credit
Paying off consumer credit can be liberating, but continue making small purchases on your credit cards from time to time. Even if you pay the balances off each month, it shows you manage debt responsibly, which can actually improve your credit score, she adds.
Choosing the right refi loan
Another way to get the best refinance rate is to select the right loan product:
4. Be wary of “no-cost loans”
“That always tickles me,” Daly says of such loan gimmicks. “There are no free lunches.” All lenders will charge fees, whether they are paid upfront, rolled into the loan balance or built into the loan’s interest rate.
In fact, Joe Burke, a loan officer with Guaranteed Rate in Chicago, says paying closing costs out of pocket can lower your interest rate.
5. Resist the urge to take cash out
A cash-out refinance will raise your interest rate, Daly says.
6. Consider a shorter loan term
Burke notes that expanding your loan term may not be in your best interest.
“If you’ve already paid seven years into a 30-year fixed, for instance, putting you into a new 30-year fixed may not be the best financial decision,” he says.
Moving from a 30-year mortgage to a 20-year or even a 15-year term can earn you a lower mortgage interest rate.
“A lot of people don’t know that,” Daly adds. She tells of customers who were considering several options on a mortgage. They had 10 years left on their loan, and they thought it wouldn’t make sense to refinance. Daly showed them that refinancing to a 10-year loan term with a lower mortgage rate would save $45,000 in interest, without significantly changing their monthly payments.
“They were just thrilled,” Daly says, “paying a little bit more [each month] but saving all of that money.”
» MORE: Calculate your refinance savings
Time is money
And there are occasions when saving money can be a matter of good timing:
7. Huddle with your loan officer about when to lock in your refi rate
“Sometimes, believe it or not, we have a little bit of a crystal ball” about how mortgage rates may behave in the very short term, Daly says. That can be tied to major economic news, policy announcements or government reports.
8. Respond quickly to document and information requests
Quick answers can save you the cost of paying for an extended rate lock period if the paperwork process bogs down. It might even be a good idea to stay available and in town during a refi, Daly adds.
9. Consider the future
“One of the questions that we’re always asking people is, ‘How long do you plan on staying in the home?’” Burke says. “I think that’s a very important question that a lot of people don’t ask.”
For example, if you know you are going to be selling your home in five to 10 years, an adjustable rate mortgage, with an introductory rate lower than that of a fixed-rate loan, may be the right choice, Daly adds.
You have to apply yourself
And finally, snagging the best refinance rate takes finding the right lender and the right mortgage professional:
10. Shop rates — and know what they mean
Advertised rates that seem unusually low may have discount points built in — that’s when you pay upfront to get a lower interest rate. For the lender, factoring in discount points may be a ploy to drive business, but for borrowers, the points can be a part of a loan strategy.
“Most of the time, we find that the buy-down doesn’t make sense,” Daly says. To see if discount points work in your situation, consider your monthly payment savings against how long it will take to recoup the fees — and how long you expect to stay in a home.
Burke says borrowers often fixate on a low rate but miss important details in loan terms disclosed in the fine print.
“Looking at APR is absolutely one of the best ways to go,” he says. The stated annual percentage rate of a loan includes the interest rate you’ll pay on the loan, plus all fees. You’ll have to complete an application with each lender you’re considering to get all the information that impacts your offered APR.
11. Find a savvy mortgage pro
That means “making sure you’re working with somebody that’s reputable and isn’t just hanging teaser rates out there for you,” Burke says.
And you want a knowledgeable loan professional who’s willing to help you find your best rate. As an example, Daly points to government-backed loan programs that are offered in some regions.
“The mortgage professional has to know to look for that,” she adds. Daly says she’s had clients who would have ended up with a higher mortgage interest rate if their loans hadn’t been flagged as being in an eligible area for one of these programs.
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Your subscription to The Atlanta Journal-Constitution funds in-depth reporting and investigations that keep you informed. Thank you for supporting real journalism. Visit the AJC's Georgia Navigator for the latest in Georgia politics.See the full story at Hal M. Bundrick, CFP