How to Refinance Your Mortgage at the Most Competitive Rates

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1 Your Mortgage

2 It is vital to get the best deal on mortgage refinance rates to refinance your mortgage. The following 12 steps are going to help you lock in the lowest possible mortgage refinance rates. 1. Improve your credit score Generally speaking, a credit score of 740 or higher puts borrowers in the best position to get a regular loan program, according to experienced bankers. A majority of lenders will require a credit score of at least 620 to 640. However, you are likely to pay a higher mortgage rate for regular loans if your score is lower than Reduce your debt Timely payment of bills and credit card balance helps in reducing your debt-to-income ratio, or DTI. This will make you eligible for a lower mortgage refinance rate. It is important to ensure that your DTI ratio does not exceed 36 percent. In fact, the lower is your DTI ratio, the better are your chances of qualifying for low mortgage rates. 1

3 3. Raise your home equity Your credit scores and property s loan-to-value ratio can impact your refinance rate more than just causing a little change in average mortgage rates. Both a higher loan-to-value ratio and a lower-than-average credit score can result in a higher interest rate. 4. Consolidate your financial documents Before applying for mortgage refinance, you need to get your credit reports from all three departments. Ensure that the reports contain no mistakes that may later need correction. Typically, a refinance application requires two latest pay stubs, two years of tax returns with W2s, and two latest bank and investment statements. 5. Put aside money for closing costs About 2 percent of the loan amount will be your closing costs. It is possible to pay upfront for the closing costs or you can roll these costs into a new loan, if you have sufficient equity. A few lenders even provide an option to pay a higher rate of interest for lender credit for covering these costs. 2

4 6. Begin with an online refinance calculator A few financial advisors suggest using a refinance calculator online to estimate monthly charges at several loan terms. A 30-year fixed-rate loan will have a higher interest rate than a shorter term loan. On the other hand, the payment size for the shorter term loan will be bigger because of faster pay off. 7. Choose an appropriate loan term Decide on a loan term considering your other financial obligations and plans. It is better to choose a 30-year loan to keep the payments as small as possible if you have $25,000 in credit card dues and no funds for college. Another person may find it better to choose a shorter term loan to build equity earlier. 8. Approach different lenders After choosing your loan term, it is time to approach a regional or community bank, a credit union, a national bank or a direct lender to find out available loan products. Find a trustworthy lender who will take interest in your family s monetary situation. Avoid choosing a lender solely on the basis of mortgage rates (it is the biggest factor to consider, but not the only factor). 3

5 9. Analyze your loan options Lenders can share information about different loan products with you. There are several options including government-backed programs like FHA loans, conventional funding programs, and special refinancing programs through the Making Home Affordable program. 10. Plan about financing your refinance Decide how you are going to pay for your refinance. You can pay lender fees and closing costs at the time of closing, or you can wrap them into your loan balance. It is also possible to choose a no-cost refinance. 4

6 11. Draw a comparison between mortgage rates and fees Mortgage rates change every day. Therefore, to get a real comparison of prevailing mortgage rates, it is important to shop for the same loan on the same day. Describe your complete criteria for your refinance to each loan officer instead of just asking about the rate on a specific day on a specific loan. Furthermore, it is pertinent to ask about the time they will take for loan processing. 12. Know when your refinance rate can be locked-in After deciding on your loan, consult your lender to know when you might be able to lock-in the rate. Different lenders have different processing times, which can span from 30 to 45 days to over 90 days. Looking for a competitive refinance rate is likely to consume more time than refinancing with your present lender. However, the potential monetary advantage will make your efforts worthwhile. 5

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