If you are able to negotiate a lower interest rate, refinancing your mortgage has the potential to save you thousands of dollars over the course of the loan. In general, refinancing is a viable option if it is possible to lower the current mortgage rate by a minimum of 0.5% to 0.75%. Nevertheless, it is necessary to implement a strategic approach in order to secure the most favorable refinance rate.
Enhance your credit score
Your credit score significantly influences the mortgage rate that lenders will offer you. Typically, lenders reserve the lowest rates for borrowers with outstanding credit scores of 760 or higher. Before applying for a refinance, it is important to pay off credit card balances, rectify inaccuracies on your credit report, and avoid incurring new debt. Even a slight increase in your credit score could enable you to qualify for more favorable refinance pricing. Here are additional recommendations for improving your credit score in order to optimize your lending opportunities.
Earn mortgage points
When you purchase discount points, also known as mortgage points, you pay an upfront charge to “buy down” the interest rate on your new loan. Each point typically reduces the rate by 0.25% and costs 1% of the loan amount. If you intend to remain in the residence for an extended period, purchasing points is a viable option, as the monthly savings will compensate for the initial expenses. The following is my description of the operation of mortgage points and the appropriate time to investigate them.
Pay the closing costs in advance
In exchange for covering fees, certain lenders provide “no closing cost” refinances, which entail a higher interest rate over the course of the loan. Choose to cover all closing costs personally to secure the most favorable interest rate. In general, closing costs are between 2 and 5% of the loan amount.
Investigate a number of lenders
On any given day, mortgage refinance rates can fluctuate significantly among lenders. Obtain quotes from a minimum of three to five mortgage companies, credit unions, and banks. Having multiple offers enables you to leverage the lowest rate quotes and request competitors to match or exceed the pricing. In the same manner as you would research a restaurant, consider these tips for shopping lenders to increase the likelihood of selecting a dish that you will appreciate.
Request that the rate be matched
In the event that you locate an alternative lender that provides a reduced refinance rate, request that your preferred bank match the superior pricing. In order to secure your business, certain lenders are prepared to match or slightly undercut a competitor’s quote.
In conclusion, the monthly payments on your refinanced mortgage will be more affordable as the interest rate decreases. By refinancing at the lowest rate possible and maximizing your savings, you can employ strategies such as improving your credit, paying points, and browsing around.
