One important reason why you would want to refinance is the possibility of obtaining a lower interest rate than your existing mortgage. If you plan appropriately and prepare well, you are likely to lock in the lowest possible rate of interest, enabling you to make lower monthly payments or pay off your debt faster.
The following are some of the goals that you should target to become eligible for a lower refinance rate.
- A high credit score, preferably more than 740
- A low debt-to-income ratio (DTI)
- A low loan-to-value ratio (LTV)
- A sufficient cash reserve to pay for closing costs and other fees
- An appropriate time to lock-in the best rate at a lender
Some Ways to Get the Lowest Mortgage Refinance Rates
Taking into account the above factors, you can plan to work with a lender and come up with the best refinance rates. Here are a few things you can do to achieve your goals.
- Pay your bills on time: Keeping yourself current on payments can have a big impact on your credit score. It is a good idea to automate your regular bills and payments to avoid a late fee or default. Paying bills on time and maintaining a zero credit card balance will also help you achieve a low debt-to-income ratio.
- Don’t make major purchases: Using your credit when your mortgage approval is due is not a good idea. Your lender might like to see your credit report just before the closing, so you must avoid doing any activity that can lower your credit score. A change in your credit score will necessitate an adjustment in your interest rate.
- Wait until your equity increases significantly: As you pay down your mortgages, your equity in home increases. At the same time, your property is likely to appreciate in value. A reduced loan balance and an appreciation in home value can lower down your loan-to-value ratio, which is what you should aim at for a lower refinance rate.
- Compare rates online: Use an online comparison tool to research refinance rates and terms from different lenders. While shopping for a refinance product online you must also pay attention to find a lender that you can easily trust. It is important to have a friendly and reliable lender who you can work with comfortably for the entire term of the loan.
- Seek help under a refinance assistance program: If you are underwater or struggling with payments, you can seek the help under a refinance assistance program run by the federal government. Ask your lender if you can qualify for any of the government-approved assistance programs, such as Home Affordable Refinance Program (HARP), Making Home Affordable program or FHA loans.