Mortgage rates are low, which means refinancing is quickly becoming one of the most popular mortgage applications submitted to lenders. For homeowners throughout the country, refinancing to a lower rate can be a smart, cost-effective option. If you decide a refinance is right for you, then it’s important to get the best rate from your lender. Here are today’s best strategies on how to refinance to the best rate possible:
Build Your Home’s Equity
The higher the home’s equity, the lower the homeowner’s loan-to-value (LTV) ratio—which is necessary for a great rate. You see, borrowers with lower LTV ratios are considered less risky for the lender, so they receive lower interest rates on their monthly payments. There are three ways to build your home’s equity prior to refinancing:
- Make improvements or additions to your home (consider a renovation product that can get you the funds you need)
- Make additional payments on your mortgage
- Look into similar home sales in your area
Boost Your Credit Score
You typically want a credit score of 740 or higher before you refinance. This will ensure that you’re not stuck with a high interest rate when you lock in your new mortgage. If your score falls between 580 and 620, the minimum qualifying credit scores depending on the product, consider working to boost your score. Here are your options:
- Keep your balance below 50% of your credit limit
- Pay your bills on time
- Avoid any new big purchases that may jeopardize your score
Offer to Pay Discount Points
Points are essentially prepaid interest that can lower your interest rate for the life of the loan. One point equals one percent of the total loan. For example, if the mortgage loan is worth $150,000, then one point would be $1,500. Typically, the more points you pay, the lower the rate. In some cases, however, buying down the rate may not help you save on monthly payments. Consult with your mortgage specialist to determine if this option is right for you.
Be Prepared To Lock In
Once you’ve decided on your new mortgage, you need to pick the best time to lock in your rate. Here are some tips to lowering costs when you close:
- Close at the end of the month
- When rates are low, make sure not to overpay loan discount points. The best way to ensure that you’re not overpaying is to consult with your local lender.
No matter which strategy you use to get the best rate when refinancing, the outcome will be worth the extra effort and research. For more information about how to refinance to the best rate possible, or to learn more about home financing, contact one of our mortgage specialists today.