7 Tips to Get the Best Rate on Your Refinance
Refinancing your mortgage can be a smart move to lower your monthly payments, shorten your loan term, or tap into your home’s equity. However, securing the best interest rate is key to maximizing your savings. Follow these tips to ensure you’re getting the most competitive rate on your refinance.
Check Your Credit Score
Your credit score plays a significant role in the interest rate you qualify for. Lenders offer the best rates to borrowers with strong credit profiles. Before refinancing, obtain a copy of your credit report from all three major bureaus (Experian, TransUnion, and Equifax) and review it for inaccuracies. Dispute any errors that could be lowering your score, and take proactive steps to improve it. Paying down high credit card balances, making on-time payments, and avoiding new credit inquiries in the months leading up to your application can have a significant positive impact. Remember, even a small increase in your credit score can make a big difference in your rate.
Consider a Shorter Loan Term
While shorter loan terms, such as 15 years, come with higher monthly payments, they often feature lower interest rates. If you can afford the payments, this option could save you a significant amount in interest over the life of the loan. Additionally, paying off your mortgage sooner can provide peace of mind and free up future cash flow for other financial goals. Be sure to calculate the long-term savings versus the higher monthly obligation to ensure it aligns with your budget.
Improve Your Debt-to-Income Ratio
Lenders evaluate your debt-to-income (DTI) ratio to assess your ability to repay the loan. Reducing your DTI by paying off outstanding debts or increasing your income can make you a more attractive borrower and help you qualify for better rates. Start by listing all your debts and prioritizing payments on high-interest accounts. If possible, consider taking on a side job or seeking a raise at work to boost your income. A lower DTI not only improves your chances of approval but also positions you for more favorable loan terms.
Lock in Your Rate
Once you find a favorable rate, ask your lender about a rate lock. This guarantees your interest rate for a set period, typically 30 to 60 days, protecting you from potential market fluctuations while your loan is processed. Be sure to understand the terms of the lock, including any fees and what happens if the lock expires before your loan closes. If you’re concerned about rates dropping further, some lenders offer a “float-down” option, which allows you to take advantage of a lower rate if it becomes available during the lock period.
Time Your Refinance Strategically
Interest rates fluctuate based on market conditions, so timing your refinance can make a big difference. Stay informed about trends in the housing market, economic indicators like inflation and employment rates, and Federal Reserve announcements. When rates are low, it’s an excellent time to act. Keep in mind that personal factors, such as your financial readiness and plans for staying in your home, also play a role in determining the right timing for you.
Keep Closing Costs in Mind
Low rates aren’t the only factor to consider when refinancing. Closing costs, which typically range from 2% to 5% of your loan amount, can significantly impact your overall savings. Review the Loan Estimate provided by your lender to understand these costs, including origination fees, appraisal fees, and title insurance. Some lenders offer no-closing-cost refinance options, which may have slightly higher rates but can be advantageous if you’re short on upfront funds. Be sure to calculate your break-even point to determine whether refinancing makes financial sense in your situation.
Make Your Refinance Count
Refinancing is a powerful tool for improving your financial situation, but getting the best rate requires preparation and smart decision-making. By taking these steps, you can position yourself for a successful refinance and maximize your long-term savings.
At First Ohio Home Finance, we’re here to help you navigate the process and find the solution that best fits your goals. Contact us today to learn more about our refinancing options and how we can help you secure the best rate for your situation.