When it comes time to refinance your mortgage, it is a smart decision to look for the best rate you can find. After all, even a small percentage can make a significant difference when you apply it to the hundreds of thousands of dollars in your mortgage.
The following methods will help you save money in the long run with the best refinance rates. With so many, you are sure to find a method to best fit your needs.
Check Your Credit Report for Errors
As soon as you know that you want to refinance your mortgage, get a copy of your credit report. Then, take the time to check it for errors. It may seem like a minor step that wastes your time, but it can lead to significant savings.
That’s because correcting errors will improve your credit score. Any bump in your credit score makes lenders view you more favorably. That, in turn, translates into a reduction in your rate.
Depending on the error, you could easily find yourself saving about $95 a month or more. Even if you only save $25 or $50 a month, it will add up over time.
Keep Using Consumer Credit
Consumer credit refers to your credit cards. It’s tempting to pay off all your debt and stop using credit cards. This is especially true if you have fallen behind in the past. But that is not the option that’s best for your credit history or score.
Instead, make occasional small purchases on your credit card. Just make sure that you can always pay off the purchase in full at the end of the month. This will show lenders that you are responsible with debt. It will also boost your credit score.
Remember that your credit score directly affects your refinance rates.
Consider Increasing Your Available Credit – But Don’t Use More
Just using your credit cards responsibly can improve your credit score, but you will see even better results if you do so in a smart way. Specifically, see if you can increase your available credit but still use the same amount every month.
This will reduce your credit utilization ratio. Ideally, you want your credit card balance to stay under 25 percent of the credit you have available. This tip is incredibly useful as your credit utilization ratio is one of the major factors lenders look at before offering you a refinance rate.
Think About a Shorter Loan Term
When you refinance your mortgage, you have the option of choosing a new loan term. You may be tempted to opt for a 30-year term, as this will give you lower monthly payments. However, you will pay much more in interest over time. Additionally, you will likely have a higher interest rate for a longer loan term.
The bottom line here is that opting for a 15- or 20-year loan term can save you money as you refinance. You can even drop it to a 10-year loan. You will likely get a lower interest rate and you will definitely pay less interest over the life of the loan.
Consider a Mortgage Rate Lock
Mortgage rates fluctuate based on economic news, government reports, and policy announcements. As such, sometimes, experts can predict when they will rise or fall. You can use this knowledge to get a mortgage rate lock.
That lock freezes your mortgage rate in place, so rising rates don’t affect yours. This is important to do as processing the loan can take weeks and the rate may change significantly during that time.
Make sure to ask a financial expert if this makes sense for you.
Understand the Rates as You Compare Them
Part of finding the best mortgage refinance rate is comparing prices from various lenders. But make sure that you understand what you are looking at as you compare those prices.
“No Cost” Loans
Never trust that a “no cost” loan truly has no cost. The fees may not be where other lenders have them, but they will be somewhere. If you don’t pay them upfront, they may get built into your interest rate or rolled into your loan balance.
Closing Costs
You will also want to see if you can reduce the loan balance by paying the refinance closing costs initially. At the very least, this will reduce your balance. It may even lower your interest rate.
Discount Points
Some low rates may include discount points. Those points refer to paying upfront to reduce your rate. These may sometimes work to your advantage, but that’s not always the case. Always calculate how long you would have to pay the loan for to recoup that initial payment.