Wondering how to maximize savings with a mortgage refinance? Your first step is finding your best deal on refinancing; there's more to the story than interest rates alone. Start your loan shopping by requesting refinance quotes from several lenders. Interest rates vary by lender, loan type and your credit standing. While less than perfect credit may cause a higher mortgage rate, it's possible to save in other ways.
Past Bad Credit: Maximize Savings with a Mortgage Refinance
If you purchased your home or previously refinanced when you had credit problems, check out today's refinance rates. You may find that you can refinance to a lower mortgage rate. Pull your credit reports and scores before requesting mortgage quotes. Check your reports carefully for errors and evidence of identity fraud. If you currently have credit problems, it may still be possible to refinance. The Federal Trade Commission encourages home buyers to shop home loans, compare rates and terms, and to negotiate with lenders.
Cash-out refinancing can be used to consolidate bills and refinance high interest rate credit cards and car loans to lower rates. How much you save depends on the terms of the bills you want to consolidate. Make a list of accounts owed, their amounts and interest rates. This helps with estimating potential savings based on current mortgage rates.
Refinancing a "Starter Home?" Consider an Adjustable Rate Mortgage
Take advantage of low mortgage rates to buy your first home. If you plan to move in a few years, an adjustable-rate mortgage can help you save with a low initial rate during an introductory period that typically runs three to seven years. During the intro period, you'll pay a rate that's lower than rates for fixed-rate mortgages. At the end of the introductory period, your mortgage will adjust once a year according to a financial index specified by your lender. Always check for prepayment penalties on adjustable-rate mortgages, as they will reduce your potential savings on interest. If you're planning to move in a few years, it's important to estimate when you'll break even on refinancing costs. You can use LendingTree's refinance calculator to compare your current mortgage with refinance quotes and estimate break-even costs based on loan costs quoted.
More to Refinancing than Interest Rates
Comparing refinance quotes for the type and amount of your refinance loans can help you find your best deal. While mortgage lenders promote mortgage rates as top priority, you'll want to dig deeper to save more. Lender fees and charges can vary and you'll want to check discount points quoted by prospective lenders. Mortgage lenders often advertise their lowest rates to capture your attention, but there are other costs that may be added to compensate for "teaser" rates. Rock bottom mortgage rates are typically available to borrowers with top credit scores. Taking time to request and compare multiple mortgage quotes can help you find your best deal with or without the "lowest" rate.
After comparing interest rates, check the discount points on each mortgage quote. Discount points are calculated as a percentage of your mortgage amount. If you're charged one percent for discount points on a $200,000 mortgage, that's an additional $2,000 you're paying the lender. Compare lender charges and estimated closing costs for each loan quote. Lender fees include origination fees, document fees and loan processing fees. Closing costs include title insurance, pro-rated property taxes, recording fees, and escrow or attorney fees. These costs are not usually negotiable, but you can shop for title companies and escrow agents that charge lower closing fees.
Refinancing to a shorter loan term can help you save big on mortgage interest. You'll have higher monthly payments, but will pay off your mortgage faster and for less interest. Most mortgages are paid off before full term; you may want to estimate savings by comparing your current mortgage loan and how long you expect to pay on your new refinanced mortgage.
Loan officers can answer questions and help with basic calculations, but please remember that actual loan costs will likely differ from your estimates.