This year, mortgage interest rates have fluctuated from a record low in early January to a 10-month high in early April and then dropped again. Average 30-year mortgage rates fell below 3% this week to their lowest level since mid-February.
The drop in rates has opened possibility of economical refinancing for the millions of Americans who have not yet taken out new loans at lower interest rates. A recent study by Zillow found that 78% of homeowners have never refinanced in the past year at historically low mortgage rates.
If you’re in this group, it’s time to stop procrastinating because mortgage rates are expected to rise as the economy recovers from the blows of COVID-19.
Rates vary greatly from lender to lender, but these four tips will help you make sure you are getting the best deal when refinancing into your new 30 year mortgage.
Search for mortgage offers and compare rates
Refinancing into another 30 year loan may be the right choice if your current mortgage is relatively young. You will not stretch your interest if you have lived at home for only a year or two.
Rates on 30-year fixed-rate mortgages currently average 2.90%, according to a lengthy weekly survey by mortgage giant Freddie Mac. This is the lowest figure in about five months, and was down from 2.98% last week. A year ago, the average 30-year rate was 3.03%.
You could be a great candidate for refinancing if you have a mortgage that you took out in 2019 when rates averaged 4.5%.
Remember that the average rate is just an average. To get a refinancing loan at 3%, you need to take a closer look and compare the rates of several lenders. Freddie Mac’s research has shown that if you collect and review five mortgage offersyou will pay an average of $ 3,000 for life expenses less than if you only get one loan offer.
According to a recent study by mortgage technology and data provider Black Knight, about 14.1 million Americans still have the ability to refinance and cut their interest rates by at least three-quarters of a point (0.75). That’s enough to save you an average of $ 287 per month, according to Black Knight.
Improve your credit score
The higher the credit rating, the higher the mortgage rate. Lenders like borrowers with very good credit ratings (ranging from 740 to 799), if not exceptional (800 to 850).
To get a refinancing loan that will save you hundreds of dollars a month, you will need at least 720 credits, according to Black Knight.
Don’t know your credit score? Easy enough take a look at it for free…
If you find that your credit score needs help, take steps to improve it:
Pay off other debt, especially on credit cards. BUT debt consolidation loan can help you get rid of credit card debt faster and with much lower interest.
Don’t open new credit cards, but don’t close old ones either. If you cancel your cards, you will reduce the available credit – and this could damage your account.
Get your credit reports and make sure there are no mistakes that lower your credit score. In the recent Consumer reports study, more than a third of the volunteers checked their credit reports for errors – and found them.
Show the lender that you have invested in your home
Refinancing homeowners who have substantial equity in their homes tend to get the lowest refinancing rates. Equity is the percentage of the value of your home that you own from payments you have already made.
For a lender, the ideal refinancing candidate has at least 20% equity, Black Knight said. If you still have ways to hit the 20% level, you’ll want to make a down payment on your mortgage that will push you over the edge.
As an added bonus, when you have at least 20% of your home equity in your home, you don’t have to buy or keep paying for private mortgage insurance.
PMI offers lender protection in the event of a borrower’s default. Not to be confused with homeowners insurance that offers you protection if your home is damaged by fires, tornadoes and most other types of natural disasters.
You should already have home insurance – it’s vital and most lenders require it. But every time your homeowners policy requires an extension, go online and collect a bunch of competing quotes so you can be sure you are not overpaying for coverage.
Be prepared to pay “points”
Additional fees, known as “discount points,” are a type of down payment that can help you get a low 30-year mortgage rate. One point is equal to 1% of the loan amount and can reduce the rate by a whole quarter of 1 percentage point, say, from 3% to 2.75%.
Truly amazing mortgage rates are often – though not always – accompanied by points.
It will take you a while to pay off on items and other final costs before you really start enjoying the savings from the low mortgage rates. In other words, a refi might not be the right move if you probably want to move relatively soon.
Lenders have their own individual pricing structures, so do not assume that the credit score will always be the lowest rate. You may find that another lender is offering a loan with a zero score and a higher rate.
This is another good reason look for several loan offers and look at them side by side – to make sure you get the best mortgage rate you can.