In 2024, interest rates for refinancing have moved considerably higher, with conventional 30-year mortgage rates in the 6% range. If you are considering a refinance mortgage because you want to secure a low interest rate, you may want to get rolling sooner than later. There have been reports that refinances have dropped off as people are finding rates are going too high for them to refinance to save money. It is important to do your homework when choosing a refinance mortgage program online today.
With the trend for interest rates pointing upward, now is the time to find the right refinance that maximizes monthly savings.
Securing the best deal on home refinancing involves a strategic approach that considers various factors. Start by thoroughly researching and comparing lenders to understand their terms, interest rates, and fees. A key element in obtaining a favorable deal is having a strong credit score, so take the time to improve your credit profile before applying. A lower credit score may result in higher interest rates and less favorable terms. It’s also crucial to evaluate the current market conditions; refinancing during a period of lower interest rates can significantly impact your savings over the life of the loan. Learn about the new rules and credit score requirements for a refinance mortgage.
For those who want to refinance their mortgage, below are some secrets to get a lower rate:
#1 Check for Credit Report Errors
This is one of the most common pieces of advice for people getting a mortgage. But many think it cannot happen to them. Wrong! At least 25% of credit reports have mistakes on them. Sometimes those mistakes can cause your score to drop. For example, there are cases where home owners who wanted to refinance had a tax lien and charge off on their credit report that was not theirs. There also are cases where a negative mark on the report was listed more than once.
If you find anything on your credit report you disagree with, you should contact the credit bureau either by mail or online and contest it. You may find that your credit score could be raised significantly. If your credit scores are below 600, consider completing a FHA-loan application, from a lender that specializes in mortgage refinancing for people with below average credit.
#2 Keep Credit Card Balances at 25% or Less of Available Credit
You will always have lower credit scores when you are using more of your available credit balance. But the good news is that you can increase your score quickly by paying it down.
#3 Do Not Stop Using Consumer Credit
Paying down your credit card debt is a good thing and it sure does feel good. But do not stop using credit cards. It is a good thing from a credit score perspective to continue to make small credit purchases and continue to pay them off every month. This shows creditors that you are using your credit responsibly and will raise your score.
#4 Watch Out for No Cost Refinances
Any time you take out a new loan, whether it is a first mortgage or a refinance, you will have closing costs and fees. Consider all options before choosing a no-cost mortgage refinance with a higher interest rate. All lenders charge fees of some kind whether they are paid up front or rolled into the loan balance or built into the rate. The cheapest way to pay closing costs and fees will usually be to pay them out of pocket. The most expensive will be usually to pay them by rolling them into the loan. You will pay interest on those closing costs for years, and it will be many years if you stay in the home for a long time.
#5 Do Not Take Out Cash
It is very tempting to take out cash to pay off credit cards and do other things with the money. But this will raise your rate and increase the debt you are paying interest on. It can make sense to use home equity to make home improvements and increase the value of the home, but you will pay a higher rate and have more debt.
#6 Think About a Shorter-Term Loan
If you want to get a lower rate, you will be well served to get a shorter-term loan. When you refinance from a 30 year into another 30-year loan, you are starting the loan all over again. This may not be a good financial move if you have already paid five years off on the loan. But you can mitigate this by getting a house refinance with a 20 year or 15-year fixed loan at a lower rate. Yes, your payment will be higher, but you will pay thousands less in interest.
#7 Think About How Long You Will Be in the Home
This is an important question that can affect whether you even refinance at all. If you think you will move in three or five years, you may want to wait on the refinance. You will pay at least three percent in closing costs. It will take several years for you to recoup those costs. If you plan to move soon, you might want to just stay in the mortgage you have now.
#8 Watch Rates but Be Smart About It
Rates have been generally going higher in 2023 and the best time to refinance a mortgage may have passed. But if you think you still can refinance your mortgage and save money, do not be fooled by those low rates you see advertised. Many times, those rates have discount points built in. You are paying up front fees to lower the rate. This may not make sense for you – why should you pay discount points up front if you are going to move in three years? Again, how long you will be in the home is a vital consideration.
Takeaway on Getting a Deal Refinancing
Carefully review your financial situation and long-term goals to determine the most suitable refinancing option. Understand the different types of refinancing, such as rate-and-term or cash-out refinancing, and choose the one that aligns with your specific needs. Negotiate with lenders to secure the best possible interest rate and terms, and don’t hesitate to inquire about any available discounts or promotions. Additionally, consider working with a mortgage broker who can leverage their industry knowledge to find the most competitive deals. Be mindful of hidden fees and closing costs, and aim to minimize these expenses through negotiation or exploring lenders offering reduced fees. Finally, be patient and deliberate throughout the process, ensuring that every decision aligns with your financial objectives and results in the most advantageous home refinancing deal.
About Tom
Tom Murphy grew up in La Jolla, California surfing and carving his niche in the local real estate market. Mr Murphy has a stellar record as a loan officer with over a decade of experience helping people secure the right home loan. He now works at Movement Mortgage in Carlsbad CA. NMLS # 662141
More articles by Tom