Tips for Refinancing a Mortgage

Freddie Mac recently reported that the 30-year fixed mortgage rates are increasing again to the highest levels since May. They’re expected to continue to inch up, which means if you’ve been thinking about refinancing your mortgage you may want to do more than just think about it now and lock in a lower rate before it rises again.

After you purchased one of the homes for sale in Indianapolis, Atlanta, Houston or another city, taking on a new mortgage by refinancing can help reduce your monthly payments and makes good financial sense for many homeowners, provided interests rates are low. The better the rate, the less you’ll need to pay.

Check Your Credit Score

To get the best interest rate, you’ll need a good credit score, so before doing anything else, make sure your score is strong. While buyers with a score of 620 to 720 may be able to get a good deal, ideally it should be a minimum of 720 – some experts say that number is 740, the higher the better. The lower your score, the more difficult it will be to get approved for the loan, and the less it will make sense to refinance. If it’s not up to par, you may need to look at paying down debt, correcting any errors in your credit report, and of course, making sure you pay all your bills on time.

Shop Around

Shopping around is important when it comes to any type of loan or major purchase. Try to get references from friends, family members, co-workers and so on. Obtain quotes from at least three different lenders, comparing not only interest rates but closing costs and the quality of service, prioritizing a lender that has a good reputation of closing loans on time.

Understand the Difference Between the APR and APY

When you shop around to compare mortgage interest rates, the annual percentage rate (APR) is what you need to focus on. The annual percentage yield (APY) will reflect the loan’s interest rate but the APR is a more accurate number that reflects what you’ll actually be paying, as it incorporates expenses as well, like closing costs.

Consider the Various Loan Lengths

The length of a loan is an important factor. While most people take out a 30-year loan, knowing that a 15-year loan comes at a lower rate but much higher payments, those aren’t the only options. You might consider a compromise by taking out a 20-year mortgage instead, or even look at the numbers for a 40-year loan. Figure out how much you can comfortably afford in a monthly mortgage payment, and then aim to secure the shortest-term loan that’s in line with that.

Compare Different Types of Loans

While FHA mortgage loans are the most common, be sure to compare other options too, like conventional loans and VA loans. If you’re eligible for a VA loan, that’s typically the best bet. Your current mortgage will determine what your particular refinancing options are.