How to Get the Best Mortgage Refinance Rate
Refinancing your mortgage could potentially save you thousands of dollars over the life of your loan, that is, if you can secure a lower interest rate. Typically, refinancing makes sense if you can reduce your current mortgage rate by at least 0.5% to 0.75%. However, getting the best refinance rate possible requires some strategic planning.
Improve your credit rating
Your credit score is one of the most important factors in determining the mortgage rate you’ll receive. Lenders reserve the lowest rates for borrowers with excellent credit histories, typically scores of 760 or higher. Pay off your credit card balances, correct errors on your credit report, and avoid taking on more debt before applying for a refinance. Even a slight improvement in your credit score can help you qualify for a better refinance price. Here are some more of our tips for improving your credit score and ensuring you have the best possible credit standing.
Buy mortgage points
When you buy discount points (also called mortgage points), you pay a down payment to “buy down” the interest rate on your new loan. Each point is worth 1% of the loan amount and typically reduces the rate by 0.25%. Buying points makes sense if you plan to stay in your home long enough for the upfront cost to be offset by monthly savings. Here’s my guide to how mortgage scores work and when you should look into them.
Pay closing costs upfront
Some lenders offer “no closing costs” refinancing, in which they cover the fees in exchange for charging you a higher interest rate over the life of the loan. To get the lowest rate, decide to pay all closing costs out of pocket. Closing costs are typically 2-5% of the loan amount.
Shop from multiple lenders
Mortgage refinance rates can vary significantly between lenders on any given day. Get quotes from at least three to five banks, credit unions and mortgage companies. Having multiple offers allows you to take advantage of the lowest prices and ask competitors to match or beat prices. Check out these tips for shopping lenders the same way you would research a restaurant, especially if you want the best chance of ordering something you’ll like.
Request a price match
If you find another lender offering a lower refinance rate, ask your preferred bank for a better price. Some lenders are willing to match or even slightly undercut a competitor’s price to win your business.
Bottom line: The lower the interest rate, the more affordable your monthly refinanced mortgage payments will be. Using tactics like improving your credit, paying off points, and shopping around can help you refinance to the lowest rate available and maximize your savings.