If you’ve determined it’s a good time to consider a refinance, now it’s time to do the work needed to find the best mortgage refinance rates. Standards for approval are high and banks are stringent in choosing who to lend money to. Your application should be spotless, and your credit history should present you as a homeowner who is very likely to pay all debts on time. Lenders will look approvingly at those with good credit ratings. But even if you’re not there, there are things you can do to improve your chances. Here is how to get the best refinance rates.
How to get the best refinance rates
Check your credit report for errors
Credit report errors happen more often than you might imagine. Therefore, review your credit reports carefully. If you find any errors, such as incorrectly marked missed or late payments, contact the credit report agency with documentation so the report can be fixed before a potential lender accesses it.
Improve your credit utilisation ratio
Your credit utilisation ratio shows how much of your available credit you’re currently using. It is important to keep your credit utilisation ratio low. If you’ve been maxing out your credit cards, for example, now is the time to make an effort to pay them fully and eliminate debt. Paying down credit card debt can make a big impact on your credit score. Likewise, if you’re mired in student loan debt, anything you can do to whittle down the total you owe will improve your score.
Responsible credit card use
None of this is to say you can’t use your credit cards, though. What’s important is making your payments on time and keeping the balances down. Your best bet, if you can, is to pay the total owed on your credit cards every month, so you’re not carrying a balance. Even if you can’t pay down the balance every month, at least covering new charges within a given month is a step in the right direction.
Decrease the term of your mortgage only
Lowering your monthly payment isn’t the only reason to consider a refinance. Shortening the period you’ll be paying off your loan – going from 15 years to 10, for example, can also save money in the long term and may not increase your monthly payments if you’re getting a better interest rate with the new mortgage.
Be wary of ‘no-cost’ loans
All lenders will charge fees, whether they are paid upfront, rolled into the loan balance or built into the loan’s interest rate. It’s not uncommon for closing costs to be tacked on to a loan. Paying refinance closing costs out of pocket can lower your interest rate.
The best time to lock in your rate
The experts say there is no single “best time” to lock in your rate. It’s impossible to know when the low-interest rates will peak. Therefore, your best bet is to look at what you’d be saving when you’re ready – not where you think the market will be in a week or a month. And lock in at a rate that enables you to meet your financial goals.
Shop and compare rates
We can’t stress this enough. Shop around! Your rate is specific to your circumstances. Discussions with mortgage specialists need to be part of your plan, when possible, since the rates posted online may not match what’s available and fit for your mortgage.
