5 Ways to Get the Best Mortgage Refinance Rates in 2018
Interest rates will rise in 2019 - now’s the time to lock in a lower rate
When it comes to your mortgage, every tiny percentage point counts. Lowering your rate by as little as a fourth of a percentage point can save you tens of thousands of dollars over the life of a loan.
Here are 5 tips to help you get the best rates and save big on your mortgage refinance.
>> MORE: Compare Mortgage Refinance Lenders
1. Improve Your Credit Score
Your credit score is the most important factor that lenders consider when offering you a mortgage rate. Put simply, your credit score tells lenders how responsible you are. The higher your score is, the less risk you pose to lenders, the better your chances of securing a cheaper mortgage rate.
If your credit score falls below 620, refinancing will typically not be possible at all.
Improving your credit score can be as simple as combing through your credit report for errors, which is more common than you’d think. A 2013 study by the Federal Trade Commission found that one out of every five Americans has at least one error on their credit reports - which can be an easy reversal if you catch it.
Other ways to improve your score? Make all payments on time. Pay down credit cards. Lender inquiries cause your score to drop, so avoid applying for new credit while you’re refinancing.
Another simple trick is to ask your credit card providers to increase your available credit. Using a smaller percentage of your available credit lowers your credit utilization ratio which is a major factor in your credit score.
Even small improvements in your credit score can add up to thousands saved over the lifetime of a loan.
2. Lower Your Debt to Income Ratio
Your debt to income ratio is another important factor that lenders consider. This is a calculation of how much debt you have (including monthly payments you make, other loans, other types of debt) divided by your gross monthly income. The maximum DTI that most lenders will accept is 36%, though you can frequently find lenders that will give higher ratios, particularly if you are in good standing in all other areas of consideration. The lower your DTI, the lower your interest rate will generally be.
Paying down debt lowers your DTI, which has the added bonus of raising your credit score.
Another tip: avoid taking cash out in your refi to keep your housing expense ratio low (percentage of income that’s spent on total housing expenses), which also factors into your overall debt.
3. Shop around
Shopping more than one lender should be automatic if you want to earn the best refinance rates. Research by Freddie Mac found that getting just one additional rate quote could save borrowers an average of $1,500 over the life of a loan - Shopping five lenders could save you about $3,000.
Online mortgage networks - like Lending Tree and Quicken Loans - have made comparison shopping very easy for potential homeowners. New technology has made the process more streamlined, allowing borrowers to apply in minutes, get quotes from multiple lenders, compare rates at a glance and get instant updates at every stage in the process.
Although interest rates and APRs are the two main factors to consider while comparison shopping, there are other loan terms that you should pay attention to, such as discount points (money paid up front to lower the interest rate), pre-payment penalties, closing costs and origination fees and lock-in terms (how long your rate is guaranteed, and under what terms).
Be sure the loans you're comparing offer similar terms so you can choose the best overall.
4. Lock in the best refinance rate
Although mortgage rates are tied to a variety of different economic factors, loan advisors can predict how mortgage rates may behave in the short term. Lock in your mortgage rate to prevent rising rates from affecting your mortgage while the loan is being processed. Rates are predicted to rise in 2019, so now’s a great time to refinance.
5. Consider a shorter loan term
Lowering your interest rate is not the only obvious advantage of refinancing. Moving from a 30-year mortgage to a 15-year term can significantly reduce interest payments over the life of the loan. Overall, you might be paying a bit more each month under the new loan terms but the shorter repayment time can end up saving you thousands.