4 Ways To Save Money On A Refinance
A refinance loan replaces your current mortgage for better rates and terms or from a adjustable rate mortgage to a fixed rate mortgage. The result usually equates to lower monthly payments. While the coronavirus pandemic still looms, find ways to save money has become a priority for most people.
How Can I Save Money on a Refinance?
If you are considering refinancing your mortgage, you will want to use a tool like Credible to compare rates and lenders. In minutes, you can find your prequalified rates – and you don’t even have to leave the comfort of your home.
When doing your research, be sure to consider these four ways to save more money by refinancing your mortgage.
- Shop and Compare Rates and Lenders
- Improve credit score / debt-to-income ratio
- Consider refinancing with no closing costs
- Be ready to act immediately or be ready to pay points
1. Shop and Compare Rates and Lenders
COVID has pushed interest rates to record highs. You can also thank the Federal Reserve for lowering the fed funds rate between 0% and 0.25%. Such low rates are the driving force behind the surge in refinancing – up 89.54% compared to the last quarter and 297.3% compared to just one year ago.
While your refinance rate may be higher than that of a new mortgage purchase, you can still get by by swapping your current home loan for a new one. The only catch is a 0.5% tax, called the Adverse market charges, added to refinances over $ 125,000, as of last December.
There is no way around these fees if you are only now starting the refinancing process. Corn you can be exempt if:
- You are refinancing a VA or FHA loan
- You are in the social housing refinancing market
- You refinance a loan with a balance of $ 125,000 or less
Shopping around and comparing lenders can save you money. Typically, this won’t hurt your credit score, and you could save a lot on closing costs, fees, and the interest rate you’ll pay over time. The best way to to compare rates and lenders is to visit Credible and get accurate and transparent pricing from multiple lenders.
2. Improve credit score / debt-to-income ratio
A low credit score can make it harder to get a loan. Unfortunately, there is no quick fix to bad credit. However, there are several ways you can increase your score to improve your chances of getting the best mortgage rates.
- Keep your credit card balances low
- Pay off a big credit card debt
- Consolidate your high interest debt in one payment
- Pay your bills on time
- Correct mistakes on your credit report
- Apply for a higher credit limit
- Be added as an authorized user
Also, take a look at your debt-to-income ratio (DTI), which is the percentage of your gross monthly income that goes to pay off your monthly debts. A 36% DTI is preferable if you want to qualify for a loan. But some lenders will go as high as 43%, depending on the Consumer Financial Protection Bureau. (Just another reason to shop).
To lower your DTI, you can:
- Pay off your loans sooner than expected
- Pay higher interest balances first
- Earn money from a side activity
- Request a raise
If you want to know how to save on a home loan based on your current credit score and history, visit Credible. Credible can help you compare mortgage companies and go through the paperwork every time you’re ready..
3. Consider mortgage refinancing with no closing costs
With a refinancing without closing costs, you pay no closing costs when you get a new loan. It doesn’t mean your lender is footing the bill. It only means that these costs are included in your new loan or exchanged for a higher interest rate.
But when you consider that you’ll be paying 2-3% of your loan balance in closing costs, there are times when mortgage refinancing without closing costs makes sense and times when it doesn’t.
- There is less money to spend at the time of closing
- You can save money if you plan to move in less than five years
- It makes refinancing in the near future more affordable
- You will likely pay a higher interest rate on your refinance
- Your monthly payment may be higher
- You’ll pay more interest over the life of your loan
If you are still hesitant to refinance your mortgage, use an online mortgage refinance calculator to determine your new monthly fees.
4. Be prepared to act immediately or be prepared to pay points.
Mortgage points are fees paid to your lender at the time of closing to cover the costs of creating the loan or reducing the interest rate. As with refinancing without closing costs, there are some advantages and disadvantages that pay off. One point usually lowers your interest rate by 0.25%. So one point would lower a mortgage rate from 3% to 2.75% for the life of your loan.
To get the best deal on mortgage points, visit Credible and select mortgage refinance offers from a wide variety of lenders in just minutes.
On a $ 400,000 mortgage refinance, for example, one point will cost you 1% of the loan value, or $ 4,000 for a lower interest rate. If you plan on staying in your home for a long time, or if paying points is what qualifies you for the loan, that makes sense.
But act quickly. If you refinance your original home loan now, you could save a bundle on your 2020 taxes. When you refinance your mortgage, mortgage interest, property taxes, mortgage points, and closing costs are all tax deductible. Plus, refinancing won’t impact your property taxes.
Not only that, but with interest rates at historic lows and no magic ball to look into the future, if you don’t act immediately, you could be paying a higher interest rate. Wait and be prepared to pay points to reduce your interest rate to current (or near current) rates when you refinance your mortgage.
Find out if you meet the prerequisites to be qualified and talk to an experienced loan officer to get all your Answers to questions about mortgage refinancing by visiting Credible today.