Everyone wants the best mortgage rates for their next home loan; however, the approach most people take results in overpaying thousands of dollars at closing. In fact, the fees you pay closing on your next mortgage make or break the deal you’re getting. Here are six tips for getting the best mortgage refinance rates while paying as little as possible closing on your next home mortgage loan.
How to Comparison Shop for the Best Mortgage Rates
The process of refinancing your home isn’t much different from when you took out your first mortgage. Before you can make an informed decision on which lender’s offer is best there are a few decisions you need to make. Is your goal to improve your monthly cash flow by reducing your payment? Would you rather build equity in your home and payoff that mortgage faster? Deciding what your goals are for refinancing before you start shopping for the best mortgage rates will make the process infinitely easier.
6 Steps to Lower Mortgage Refinance Rates
Have you decided whether you want to lower your payments or to pay off that mortgage loan faster? If so you’re almost ready to begin shopping for a lender and their best refinance rates.
- Pick a Mortgage Program & Stick With It
- Check Your Credit Reports First
- Shop From Multiple Lenders Online
- Compare Mortgage Refinance Rates & Fees
- Decide How Will You Pay For Your Next Home Loan
- Use The Good Faith Estimate & HUD-1 Statement
The most important decision you can make when refinancing your home loan is which mortgage program you want/need. Do you need a fixed mortgage rate with low payments? Choosing a 30-year fixed rate loan will meet your needs. Want to pay off the loan quickly with a reasonable payment amount? Consider an Adjustable Rate Mortgage with a 15 year term. Is your credit iffy and you need an FHA streamline refinance?
Once you’ve decided which program works best for you stick to it and don’t let a fast-talking loan officer quote mortgage refinance rates from programs that you’re not interested.
If you’ve already started shopping for mortgage refinance rates and you’re finding the quotes you get are higher than what you’re seeing advertised, the likely culprit is your credit score. Before you do anything else visit the government-mandated website AnnualCreditReport.com and carefully check your credit reports for mistakes. If you find errors you’ll need to dispute with each credit bureau and allow enough time for the correction to be reflected in your credit score.
If your credit score isn’t what it should be the quickest way to boost it is by paying down the balances on your credit cards below 30% of your limit. Finally, never miss a payment…especially on your mortgage.
Getting the best mortgage rates for your next home loan means shopping around from a variety of lenders. Also, make sure you’re requesting mortgage refinance quotes the right way. If you want accurate quotes you have to give the loan officer your Social Security number. Many homeowners refuse to provide their SSN when shopping for the best refinance rates because they think they’re protecting their credit score.
If you shop this way you’re relying on that loan officer’s best guess as to what your interest rate will be which is almost always a waste of time. The trick to protecting your credit score while shopping for mortgage refinance rates is to limit your quotes to a two week (14-day period). If you do this you’ll only get dinged for one lender inquiry on your credit report.
Also, make sure the quotes you receive are zero discount point quotes. If you’d like to see whether paying discount points is worthwhile there is a table on page three of your Good Faith Estimate; however, you should always start with a zero point quote when shopping for mortgage refinance rates.
One of the most common mistakes is focusing on getting the best mortgage rates at the expense of fees. The new Good Faith Estimate makes it very easy to comparison shop fees. Focus on page two, paying close attention to the loan origination fee and Yield Spread Premium. If you’re not already familiar Yield Spread Premium, this is a credit generated by accepting higher than market interest rates. You can find this credit, if any, listed on page 2, section A, item 2.
The test of how good of a deal you’re getting when refinancing your home comes from how long it takes to break even recouping your out-of-pocket expenses. The quicker you break even the more benefit you’re getting from low mortgage refinance rates. Conversely, the more you pay at closing the longer it’s going to take you to break even reducing your benefit from refinancing.
You can approximate your break-even point by adding up all your out-of-pocket expenses and dividing by the amount that your payment is going down each month. If you’re unsure what your new payment will be based on the mortgage refinance rates you’re being quoted you can use a simple mortgage calculator like this one to determine the new payment amount.
Simple Mortgage Calculator
Every home loan has fees and what you’ll need to decide is how you’re going to pay your closing costs. If you want the best mortgage rates available you’ll have to pay out-of-pocket to close.
If you accept higher mortgage refinance rates to cover your loan origination fee and other closing costs you’re going to have a higher payment and eventually overpay for those fees. Unless you’re strapped for cash it’s almost always better to pay the mortgage origination fee and closing costs yourself.
The Good Faith Estimate is an excellent tool for shopping for the best mortgage rates. Keep in mind however that it is only an estimate. The final word on your mortgage refinance rates and fees is found on your HUD-1 Settlement Statement. If it’s not in writing on your HUD-1 you didn’t get what the loan officer promised.
It’s a good idea to reconcile your Good Faith Estimate with the HUD-1 Settlement Statement before closing. The same is true of your mortgage refinance rate lock. If you haven’t locked in your best mortgage rates in writing you haven’t locked.
Investing a few hours in careful comparison shopping of mortgage refinance rates and fees will save you thousands of dollars at closing and help you avoid common mistakes that tripped up your neighbors.
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