Are you considering replacing your existing mortgage with a new loan?
Many homeowners refinance to reduce their monthly payments and save money in the long run. But refinancing is a good idea only if you can qualify for a new interest rate, typically at least one percent lower than the current one.
Mortgage rates experienced a sharp decline during the pandemic, prompting homeowners to consider refinancing. As a result, 14 million mortgages were refinanced between 2020 and 2021. The market shifted in 2022 with rising rates, which made refinancing a less appealing option for mortgage borrowers.
While the housing market and economy influence the rates on mortgage refinancing, some factors are within your control. You can negotiate and get the best deal on refinancing the mortgage on your home with the right knowledge.
Learn how to secure the best mortgage refinance rate using the tips below.
Boost Your Credit Score
When applying for mortgage refinancing, lenders assess your creditworthiness using your credit score. Boosting your credit score by 20 points can qualify you for a lower interest rate, allowing you to save thousands over the life of a new loan.
Applying good credit practices can help you boost your credit score over time. One such practice is checking your credit report and rectifying any errors. You should also consistently pay your bills on time since payment history is the most significant factor that influences your credit score.
Compare Different Mortgage Offers
Comparing mortgage offers from multiple lenders is another excellent way to get the best refinance rates. This is particularly vital given the increasing and fluctuating nature of mortgage rates.
By obtaining additional rate quotes from a lender, you can save an average of $1,500 throughout the life of a loan. You can even have more substantial savings of up to $3000 by getting five different quotes from lenders.
Purchase Mortgage Points
A mortgage point is an upfront fee you pay the lender to lower the interest rate on your mortgage refinance. However, it’s worth pointing out that purchasing these points can be expensive, especially if you’re borrowing a significant amount.
Typically, one point is equivalent to one percent of your loan amount. It can be a viable option if you’re considering lifetime savings. To ensure you’ll reap the benefits of getting the best interest rate and saving extra cash for the long term, you should know when to buy mortgage points.
Maintain a Good DTI Ratio
Lenders also look at the borrower’s debt-to-income (DTI) ratio when determining interest rates for a mortgage refinance. The ratio is derived by dividing the monthly payments you put toward debts by your gross monthly income.
A DTI ratio of 36 percent or lower is generally considered good for mortgage applications. It will help you secure a better interest rate for refinancing your mortgage. You can maintain a good DTI ratio by reducing your debts and getting extra income.
One Last Consideration
It can be tempting to take the first refinancing offer. But deciding to refinance your mortgage requires careful consideration. Following the tips above can help you score a better rate on your mortgage refinance.
Working with a mortgage broker with better access to lenders may also put you in a more advantageous position. They will help you save time, money, and effort as they manage the refinancing process on your behalf.
