A good mortgage refinance rate can make your life easier, but the best one has the potential to truly change it. The financial leeway that some research and legwork can open up will create room for experiences and memories that likely would have been out of your reach otherwise.
In that spirit, we have put together some tips to help you assess your options from all angles and get the best mortgage refinance rate possible, instead of jumping at the first offer, thrown your way. Here are 9 tips to help you get the best mortgage refinance rate.
Increase Your Credit Score
Whoever you and your financial situation are, this step is a no-brainer and will always lead to a better mortgage refinance rate. With that being said, improving your credit score is easier said than done. That is because there are generally no quick ways to do it besides paying a lump sum to bring down your debt-to-available credit ratio.
Consistency, responsible spending over time, and foresight are the pillars of a good credit score. In practical terms, these attributes translate to paying your bills on time, credit history, the total amount owed, and more. Also, you shouldn’t close accounts you’ve already paid off as they reduce your overall credit available.
A good benchmark to strive for is a credit score of 740.
Reduce Debt
Being in debt doesn’t inspire confidence in lenders, so the less you have, the better. Major purchases like buying a new car, let alone splurging, should be out of the question before refinancing as that will directly and negatively impact your credit profile.
36% is considered a good debt-to-income ratio. Bear in mind that even though your credit score and debt-to-income ratio are like two sides of the same coin, they are not interchangeable, and a high credit score doesn’t erase or make up for a high debt-to-income ratio.
Buy Points (Only If You Can)
Some people believe in paying the lender upfront a lump sum in exchange for a lower refinance rate, a.k.a. buying points. One point equals 1 percent. This practice makes a lot of sense, as long as you have the capital. Otherwise, it can deprive you of financial stability for a substantial period of time, which defeats the purpose of buying points to a large extent.
Don’t be a Slave to the Lowest Interest Rate
The rule that the lower the interest rate is always better, shouldn’t be followed blindly. Lower interest rates may be offered with shorter pay off periods which can result in bigger monthly payments. While sticking to lower rates will obviously save you some money in the long term, it’s important to consider the price of those savings and if it’s worth paying.
Just like not everyone can afford to buy points, not everyone should strive for the lowest interest rate at all costs. After all, the idea is to have some breathing room, both now and in the long run.
For some people with less money to spare in the present and immediate future, it makes much more sense to pay more for the same loan, but have a comfortable amount of time to do so. It’s an idea that can bug people at first, but once they come to terms with it, the positives are undeniable.
Fixed Interest Rates
Managing to secure an affordable fixed interest rate at the right time can easily turn out to be a jackpot you’ll keep hitting for years and years to come. Fixed interest rates have a couple of serious and undeniable benefits. For one, they present a strong element of predictability, making budgeting much easier.
But beyond predictability, fixed interest rates can do a lot more for you financially, as long as a couple of major stars align. The ideal time to get a fixed interest rate is when rates are low, but they are likely to go up in the near future. So, if you happen to stumble upon such a special moment in time, and your insights into future financial trends are reliable, seize it with both hands.
Have Your Financial Documentation Sorted in Advance
The last spoke you need in your wheel is a triviality like a technical error in your documentation that can lower your credit score or a delay in obtaining all the necessary paperwork. To avoid any such hurdles, you should have this sorted well in advance of your mortgage refinance application. You are entitled to a free credit report copy from the three big CRAs –Â Equifax, Experian, and TransUnion, every 12 months.
The required documents usually include your last two pay stubs and bank and investment statements, retirement statements, W2s, and a copy of your ID.
Browse the Market for Lenders
As with any sort of transactions, the more options you have to choose from, the better. Different lenders will not only give you different rates, but each of them will unknowingly expand your understanding of the process of arriving at those particular rates. As you know, knowledge is power, especially in negotiations, and such insider knowledge is invaluable.
At the end of the day, remember that as friendly as lenders might be, it’s their job to squeeze more money from you, which makes them your inherent enemy, so to speak.
Juxtapose Rates and Fees
Sometimes, a lender’s fees can fly under the radar while your mind is entirely occupied with the rates. This is a one-dimensional approach that can end up costing you. A loan estimate, which the lender is bound to provide you within 3 days of a full application by law, will reveal the full picture, so you can make an informed decision on the best rate/fee combo.
“Lowest Rate Deal” Guarantees
Surely, you must have come across those grand promises along the lines of “beat the competition by X%.” What isn’t sure, however, is that you know what that actually means for you. Such promises aren’t just a marketing strategy, but a legally binding one. Empty promises in the marketing world are known as “false advertising” and aren’t taken lightly by the law. These guarantees can be hidden gems – hold guarantors to them by presenting them with a written quote of your lowest offer.
With these newfound tips and tricks, navigating this complex landscape to find the best mortgage refinance rate can now be much easier and more straightforward.