Best Refinance Rates: 3 Cost Cutting Tips
Rising mortgage rates compel homeowners to do more legwork to find their best refinance rates. Take these steps to find your most affordable options.
Review Your Credit Reports Before RefinancingCheck your credit reports and scores and correct errors before seeking refinance rate quotes -- you'll need to know your credit scores to get a meaningful quote anyway, so head problems off at the pass and do this groundwork first. Although the three major credit reporting agencies (Equifax, Experian and Transunion) are required by law to provide consumers one free credit report annually, they do charge a fee for credit scores. Raising your credit scores, even by just a handful of points, can help you qualify for lower mortgage rates.
Consider an Adjustable Rate Mortgage (ARM) Refinance
If you're seeking the lowest possible mortgage rates, a hybrid adjustable rate mortgage may be the answer. These mortgages typically have initial fixed rates of one-half to one percent lower than fixed mortgage rates. This adjustable rate mortgage offers an introductory period when the mortgage rate is fixed; after the introductory period these refinance loans convert to ARMs with rate adjustments made annually. Adjustable mortgage rates move according to a financial index specified in your mortgage loan documents.
ARM loans are designated by mortgage lenders according to the length of their fixed rate periods and how often rates adjust after the fixed rate period expires. For example, a 3/3 ARM provides a fixed rate for the first three years, and the rate adjusts every three years thereafter. A 5/1 ARM has a fixed rate for the first five years and the rate adjusts annually after the five-year fixed rate period expires.
If you're planning to take out an ARM refinance and sell your home or refinance before the fixed rate period expires, be sure to verify that the ARM loan you're considering does not carry a pre-payment penalty for paying it off before a date specified in the mortgage documents.
Look into a "No Cost" Refinance
Homeowners with little cash available may benefit from a no closing costs refinance. In exchange for a slightly higher mortgage rate, mortgage lenders pay your closing costs for you. Mortgage calculators can help you compare Good Faith Estimates from multiple mortgage lenders and choose the combination of interest rate and loan fees that best meets your needs.
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