As mortgage rates rise in 2018 and the long-term outlook is for higher rates, some home owners are deciding to refinance their mortgages now before it is too late. If you have the ability to qualify for a mortgage refinance with a lower interest rate without paying excessive closing costs that reduces your monthly payment, you probably should act now. While we cannot control what mortgage refinance rates are, we can control some things that will help us to get the best refinance mortgage online.
Here are some easy tips to follow to score the best refinance mortgage and rate:
#1 Check for Credit Report Errors
Everyone thinks credit report errors happen to the other guy, but you would be surprised how common they are. There are stories of loan officers running credit for a buyer and a tax lien being listed on their report that does not belong to them.
In another case, a buyer had a low credit score if 623, but their credit report had several mistakes on it. By getting the mistakes off their report, their credit score went up to 680 and they were able to save $100 a month on their mortgage refinance loan.
One of the secrets to getting the best refinance rate, it to keep your credit report accurate and clean. Before shopping for a house refinance, make sure your accounts are being reported accurately.
#2 Keep Credit Card Balances Low
Pay down debt when you can before applying for a mortgage refinance, ideally getting your credit card balances down to 25% of your credit limit. You may be able to get an increase in your credit limit so that your credit utilization rate goes down and you can get a better rate.
#3 Do Not Stop Using Your Consumer Credit
Paying off your credit cards feels good, but you should keep making small purchases on them every month and pay them off. This shows mortgage refinance lenders that you are responsible with debt and this can increase your credit score when you go to apply.
#4 Look Out for the No Cost Refinance
There are some mortgage refinances that are advertised as ‘no cost.’ But there is no free lunch in the mortgage business. All mortgage refinance lenders have to get paid, and they charge fees, no matter if they are paid up front, are rolled into the loan or built into your interest rate.
It is common for mortgage refinance closing costs to be added to the loan balance, which results in paying more interest over the life of your loan. The smart move if you can afford it is to pay the closing costs out of pocket when you close the loan. Ask about your eligibility for a refinance with no closing costs. Do a side by side comparison and see which option makes the most sense for your financial goals.
#5 Think About a Shorter-Term Loan
As mortgage rates rise, fewer home owners are refinancing because they may be paying the same or lower rate as they can get this year in a refinance. But another possible reason to refinance your home loan is to shorten the loan term. While this will increase your payment in most cases, you will pay much less in interest. For example, if you go from a 30-year mortgage to a 15 year in a refinance, you will save tens of thousands of dollars over the loan term. It’s no secret that many homeowners have found a better interest rate by refinancing into a 15-year mortgage.
Also, going to a shorter term home loan will give you a lower interest rate in some cases, depending upon what your current rate is. Shorter term loans come with a lower interest rate than 30-year mortgages do.
#6 Try Not to Take Out Cash
A cash out refinance lets you take out some of the home’s equity as part of your new loan. But it will increase your loan to value ratio and will cause you to pay more in interest over the term of your home loan. If you do not need a refinance loan for cash, then inquire about a rate and term option that may help you secure a lower interest rate.
#7 Talk to Your Mortgage Refinance Lender About When to Lock In
It is true that no one can predict mortgage interest rates, but mortgage lenders who have a lot of experience can often get a pretty good idea of what rates will do in the very short term. It also is important to talk to the lender about when to lock the mortgage rate and for how long you should do so. As of mid-2018, we are in a rising interest rate market for the most part, and many lenders are advising to lock in sooner than later.
#8 Shop Refinance Rates Carefully
Looking at several mortgage refinance lenders is one of the best ways to ensure you get the best rate. Some surveys indicate getting one more rate quote can save you an average of $1500 over the loan’s life. Another survey shows that shopping five lenders can save you $3,000.
But shopping for a refinance mortgage can be confusing. Those low mortgage refinance rates you might see advertised typically have discount points included, which is what you pay upfront for a lower rate. For many buyers, paying points does not make financial sense. To ensure you are comparing apples to apples, be sure to look at the advertised APR for each loan; this includes the interest rate plus all fees. But you usually do need to complete a mortgage application with each lender to see the full impact of all fees on the interest rate.