How to Get the Best Rate on Your Refinance
Refinancing your mortgage is a great way to achieve financial goals like lowering your monthly payments, paying off your home faster, or accessing equity for other investments. But with interest rates varying across lenders and markets, knowing how to secure the best possible rate can make a significant difference. Here are actionable tips to help you get the best rate on your refinance.
Understand Your Credit Standing
Your credit score is one of the most critical factors lenders consider when determining your interest rate. The higher your score, the better your chances of securing a lower rate. Start by pulling your credit report and reviewing it for any errors or inaccuracies. Fixing these issues can improve your score quickly. Additionally, focus on reducing credit card balances and avoiding late payments to optimize your credit profile before applying.
Time Your Refinance Wisely
Market conditions play a huge role in determining interest rates. Keep an eye on economic trends, Federal Reserve announcements, and local housing markets to identify the right time to refinance. Rates often dip during periods of economic uncertainty or when the Fed adjusts its policies, presenting a prime opportunity to act.
Consider Paying Points
Paying discount points upfront can help you lock in a lower interest rate. One point typically costs 1% of your loan amount and reduces your rate by a fraction of a percent. While this increases your upfront costs, it can lead to substantial savings over the life of your loan if you plan to stay in your home long-term. Use a mortgage calculator to determine if buying points makes sense for you.
Optimize Your Debt-to-Income Ratio (DTI)
A lower DTI ratio signals to lenders that you’re a low-risk borrower. Reduce your DTI by paying off high-interest debts and avoiding new financial obligations before applying for refinancing. Some lenders set a maximum DTI threshold, so improving this ratio can increase your chances of approval and help you qualify for better rates.
Lock in Your Rate
Once you’ve found an attractive rate, consider locking it in with your lender. Rate locks protect you from market fluctuations during the processing period, which can take several weeks. Some lenders even offer float-down options that allow you to take advantage of lower rates if they drop during your lock period.
Choose the Right Loan Term
Shorter loan terms typically come with lower interest rates compared to longer terms. While a 15-year loan may result in higher monthly payments, it can save you thousands of dollars in interest over time. Analyze your budget and financial goals to decide if this option works for you.
Prepare for Closing Costs
Don’t let closing costs catch you off guard. These fees usually range from 2% to 5% of the loan amount and include charges for appraisals, title searches, and origination fees. While some lenders advertise “no-closing-cost” refinancing, this often means the costs are rolled into your loan or reflected in a higher rate. Calculate the break-even point to determine whether the savings justify the expense.
Leverage Your Home Equity
Having a higher amount of equity in your home can help you qualify for better rates. Lenders view borrowers with substantial equity as less risky, which translates to lower interest rates. If your current equity isn’t sufficient, consider waiting to refinance until you’ve paid down more of your principal.
Take Charge of Your Refinance
Refinancing your mortgage is an opportunity to improve your financial situation, but getting the best rate requires careful planning and informed decisions. By improving your credit, shopping around, and timing your refinance strategically, you can maximize your savings and achieve your financial goals.
At First Union Home Finance, we’re committed to helping you navigate the refinancing process with ease. Contact us today to explore your options and get started on securing the best rate for your refinance.
