5 Tips to Lower Your Interest Rate When Refinancing
Do your research, consult with multiple lenders or a financial advisor, and seek out special government-backed programs that can help you lower your interest rates when you're refinancing. You may find that you can save thousands of dollars by improving the terms of your loan, repairing your credit and preparing your financial documents.
Repair Your Credit
Long before you plan to refinance, pull your credit history and repair or rectify and discrepancies on the credit report. Lenders pay close attention to your credit history and may be unwilling to extend a loan offer or may raise the interest rates if you have a lower credit score. Aim for a credit score of 740 or higher to obtain the lowest refinancing rates.
Shorten Loan Terms
Interest rates for refinancing often depend upon the length of the loan term. Maximize your savings by opting for a shorter term loan if this arrangement is financially possible. Borrowers who take out loans for 30 years are often imposed with higher interest rates and pay more during the life of the loan versus borrowers who opt for a 10-, 15- or 20-year loan term.
You may have a cordial relationship with the tellers at your bank, but this does not always guarantee your bank can offer the best refinancing rates. Shop around and seek out quotes from several lenders to compare your overall savings, the terms offered and interest rates. If you have excellent credit, you often have more choices and may find lenders bending over backwards to obtain your business when you're refinancing.
Prepare Financial Documentation
Speed up the process and show that you are a reliable borrower by providing evidence of your financial status. If you can show that you have equity in an existing home and valuable assets that can serve as collateral, you may qualify for lower interest rates when refinancing. Save time and money by being prepared with documentation in hand when consulting with lenders.
Review Loan Options
You may qualify for special government-backed loan programs, such as Federal Housing Administration loans and refinancing options through the Making Home Affordable program. Refinance options for veterans or active military members may uncover lower rates for refinancing, too. Seek out potential savings available within existing programs before signing on the dotted line.
Loan interest rates fluctuate rapidly when changes occur within the economy. A potential borrower's credit can also significantly impact an impending refinancing deal. Avoid pitfalls when seeking to refinance a loan or mortgage by taking steps to ensure that you obtain the lowest interest rate possible.