Mortgage rates haven’t been this low in 50 years, and refinancing your mortgage now could lead to lower monthly payments. Here are some tips on how to score the best rate.
While most of the news focuses on the coronavirus outbreak and all the negatives it brings, other positive events have happened when it comes to saving you money.
One such event is the lowering of interest rates. And if you refinance your mortgage now, you can take advantage of them to save money each month for other purposes, such as padding your emergency fund or paying down debt.
Here’s what you can do to help ensure you get the best refinance rate possible:
1. Check your free credit report.
When’s the last time you checked your credit report? If you haven’t done so in a while because you’re worried about the cost, know that you can get your credit report free once a year.
Why is checking your credit report so important when you’re looking to refinance your mortgage? Because the better your score, the better your interest rate, and the more money you can save each month on your house payment.
As you check your report, look for any errors. If you spot one, report it so you can get it removed. Doing so can improve your score without a ton of work involved.
2. Improve your credit utilization ratio.
The percentage of available credit that you use (credit utilization ratio) makes up a significant part of your credit score. By lowering it, you can improve your score to get a better refinance loan.
One way to lower your credit utilization ratio is to pay down debt. But this can be tough if you don’t have a ton of extra cash at the moment.
What’s the alternative? Call up your credit card providers and see if they can increase your available credit. If they say yes, be sure not to fall into the temptation to use that credit, as it will render this method useless in boosting your credit score.
3. Keep using credit wisely.
This may contradict with the last tip, but you should try to keep making small credit card purchases and paying them off each month. It shows you know how to manage your debt and can increase your score.
4. Reduce the term of your loan.
If you’ve currently paid 10 years into a 30-year mortgage, don’t refinance into a new loan of the same length. Instead, aim for a 15 or 20-year term to get a lower interest rate and reduce how much interest you’ll pay over the life of the loan.
Will you pay a bit more each month with a shorter loan term? Sure, but you can save a ton in the long run, which makes it worth it if you can make those higher monthly payments on time.
5. Shop around.
As obvious as this tip may seem, it’s probably the best way to see the best refinance rates that are currently available.
According to Freddie Mac, getting one more rate quote could save the average borrower $1,500 over the life of their mortgage. What happens when you shop among five lenders? You can save approximately $3,000.
When comparing rates, look at the APR (annual percentage rate). It includes the interest rate plus any extra fees, which helps you compare who truly has the best offer.