5 Tips for Securing Better Refinance Rates on Your Mortgage

Refinancing your mortgage can be a smart way to lower your monthly payments, reduce your interest rate, or take out cash for home improvement projects. However, getting the best refinance rate possible is crucial to maximizing your savings. Here are five tips to help you secure better refinance rates on your mortgage.

1. Improve Your Credit Score

Your credit score plays a significant role in determining the interest rate you’ll receive on your refinance loan. Generally, lenders offer better rates to borrowers with higher credit scores. To improve your credit score, make sure to pay your bills on time, keep your credit card balances low, and avoid opening new credit accounts before applying for a refinance. You can also check your credit report for any errors and dispute them to help boost your score.

2. Shop Around for Rates

Don’t settle for the first refinance rate you’re offered. Instead, take the time to shop around and compare rates from multiple lenders. Different lenders may offer different rates, so it’s essential to get quotes from several sources to ensure you’re getting the best deal. You can use online comparison tools to help you compare rates quickly and easily.

3. Consider a Shorter Loan Term

While a 30-year mortgage may offer lower monthly payments, choosing a shorter loan term, such as a 15 or 20-year mortgage, can often result in a lower interest rate. Shorter loan terms typically come with lower interest rates because lenders take on less risk with these loans. While your monthly payments may be higher with a shorter loan term, you’ll save money in the long run by paying less interest over the life of the loan.

4. Increase Your Equity

Lenders typically offer better refinance rates to borrowers who have more equity in their homes. If you’ve built up equity in your home by making regular mortgage payments or through appreciation in your home’s value, you may be eligible for a better refinance rate. Consider making additional payments towards your principal or completing home improvement projects to increase your home’s equity before applying for a refinance.

5. Pay Points to Lower Your Rate

One way to secure a better refinance rate is to pay points, also known as discount points, at closing. Each point is equal to one percent of the loan amount and can typically lower your interest rate by 0.25 to 0.5 percent. While paying points upfront will require a larger upfront investment, it can save you money on interest over the life of the loan. Be sure to calculate the breakeven point to determine if paying points makes financial sense for your situation.

Can I refinance my mortgage if I have bad credit?

While it may be more challenging to refinance with bad credit, it’s not impossible. Some lenders offer refinance programs specifically designed for borrowers with less-than-perfect credit. However, you may need to pay a higher interest rate or meet additional requirements to qualify for a refinance with bad credit.

How long does the refinance process take?

The refinance process typically takes 30 to 45 days from application to closing. However, this timeline can vary depending on factors such as the lender’s workload, your credit history, and the complexity of your loan.

Do I need an appraisal to refinance my mortgage?

In most cases, lenders require an appraisal to verify your home’s value before approving a refinance. However, some lenders offer “appraisal waivers” for certain borrowers based on the loan-to-value ratio and other factors.

Can I refinance my mortgage if I’m self-employed?

Yes, self-employed individuals can refinance their mortgages. However, you may need to provide additional documentation, such as tax returns and profit and loss statements, to verify your income and qualify for a refinance.

Is it worth refinancing my mortgage if I only plan to stay in my home for a few more years?

While refinancing may still be beneficial even if you plan to move in a few years, it’s essential to consider the closing costs and breakeven point to determine if the savings outweigh the costs of refinancing. You can use online calculators to help you estimate your potential savings and make an informed decision.