How To Get the Best Rate and Deal When Refinancing Your Mortgage

Due to historically low interest rates, many homeowners are refinancing their mortgages. In fact, close to 1.7 million U.S. homeowners refinanced over April, May and June of this year, according to Attom Data Solutions. This is over double the number who refinanced loans during the same period in 2019.

The coronavirus has had a major impact on the economy and sent mortgage rates plunging which has given homeowners an incentive to refinance their mortgage and save some money on a monthly basis. Mortgage data firm Black Knight found that at current rates for a 30-year mortgage, roughly 15.6 million Americans could refinance their mortgages at current rates and save an average of $289 a month. 

Currently, rates under 3 percent are widely available and, in some cases,, homeowners may be able to dip below 2 percent on a 30-year mortgage.  If you are considering refinancing your home, we can help. Here are four tips to get the best rate and deal when refinancing your mortgage. 

Compare Several Mortgage Companies

When shopping for a new mortgage, it is best to get quotes from a wide variety of lenders to get the best rate. Average rates have hit an all-time low of 2.88 percent according to Freddie Mac which makes millions of homeowners prime candidates for refinancing their mortgage, even those that took out a mortgage as recently as the beginning of 2020. 

A Freddie Mac study shows that getting at least five rate quotes is the best practice when it comes to refinancing your home. Compare rates online but it is always best to call a lender or visit in person to see if they are running a promotion for specific loan products that may help lower your interest rate. 

While the rate is always key, it should not be the only factor that you consider. Customer service is one factor that you should give a lot of attention to when looking for a new lender. Refinancing a loan involves a ton of paperwork and information collection. If your contact person is difficult to get ahold of or is unable to answer questions it can delay your refinance and just generally make your life miserable. 

Look for a lender that offers a great rate combined with stellar customer service to ensure that the whole process goes smoothly and ends with you in a new mortgage at a lower rate. 

 Get your credit score in order

The better credit score you have, the better your mortgage rate. Mortgage lenders love borrowers who have a very good credit score which is in the 740 to 799 range or above. Industry experts advise that in order to get the best rates being offered now you should have a credit score of at least 720. Once you drop below that, you may not qualify for the best rates.

If you are not sure where your credit score falls, it’s time to pull a credit report and give it a look. Luckily, you are entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. You can order your reports from annualcreditreport.com or call 1-877-322-8228.

If your credit score is not where it needs to be these tips may help push it up a bit: 

• Pay down debt: This is especially true for credit cards. Pay down your balances and if possible, pay off your credit cards completely. You may want to consider a debt consolidation loan which can help get rid of credit card debt quickly by consolidating it into a loan, usually at much lower interest that a credit card offers. 
• Don’t open new credit cards: If you are serious about refinancing your mortgage you should not be taking on any new lines of credit and this is especially true for credit cards. You should also not close any credit cards either as this will reduce your available credit and that can impact your credit score. 
• Fix any errors: Give your credit report a thorough reading and look for any errors. This could be reports of late payments or balances that have been paid off. A 2012 study done by the Federal Trade Commission found 20% of U.S. consumers had potentially costly mistakes on their credit reports so it is important to make sure your credit report is accurate. 

It is important to remember that credit scores do not raise instantly so it is best to get started upping your credit score at least six months before you plan to refinance. 

Consider a bigger down payment

In most cases, the bigger down payment you can bring to the table, the lower your interest rate. Refinancing homeowners who have a significant amount of equity in their homes tend to get the lowest 30-year refinance rates.

Equity is simply the percentage of your home’s value that you currently own. In order to determine the equity in your home, take the amount you have already paid on your home and divide that by the current value of the home. 

Lenders love refinance candidates that have at least 20 percent equity in their homes. If you fall under that threshold you may want to up your down payment to hit the 20 percent level if possible. If you can manage to get to 20 percent you will not only be considered for the best rates, you can avoid the added expense of private mortgage insurance which is required if you have less than 20 percent equity in your home. 

Consider paying points

It is always possible to pay points to help lower your mortgage interest rate. “Discount points” are just an upfront payment that can help lower your interest rate over the life of the loan. One-point equals 1% of your loan amount that you pay up front, this can help lower your interest rate by as much as one-quarter of 1 percentage point. As an example, paying one point can drop your rate from 3.2% down to 2.95%.

While you pay more upfront with points, over time you will be paying less over the life of the loan due to the lower interest rate. Paying points can be a great idea if you plan to keep the loan for a long time, on the other hand, if you plan on moving or refinancing the loan within a few years, paying points may not be the best idea. 

Lenders have their own policies and programs in place so don’t always assume a loan that comes with points will result in the best interest rate. There may be another lender that offers an even better rate, without the points, which is why shopping your loan is always important.