When it comes to refinancing, you want to ensure you do not incur a ridiculous rate during the process. Whether you have a short term or long term refinance plan, you have good options to accommodate your needs. Pick some reasons such as clearing some debt, home improvement, investing in an additional property or re-investing in your current home for your refinance strategy. Here are a few ways to get the lowest refinance rates.
What’s your main focus for getting the lowest refinance rates?
Do you intend to get a bit more freedom financially with a plan such as a conventional loan? Your rates may not be the lowest, but your overall mortgage may be lower because you’ve built a great amount of equity from your initial down payment. You just have to deal with some strict paperwork. Maybe you want lower rates by getting a federally insured loan. However, you can only refinance the property after claiming primary residency for the minimum required time. A conventional loan doesn’t have strict residency rules or limits on the use of your equity. If you really want to acquire the lowest refinance rates, good credit will definitely help you out.
Credit has a great role in determining refinance rates
Showing you have good credit is a surefire way of proving to lenders you not only are dependable, but you are more responsible with paying on time. Remember, lenders want to get into the least possible risk. They could provide lower refinance rates simply as an incentive to pay on time. Also, it helps you with your bargaining power because you have a solid track record of on time payments. Always search for local lenders to compare different rates and find different advantages. Be aware that there are always extra fees in regards to refinancing.
Why should you be cautious of incurring extra fees?
Not only are different rates associated with refinancing, but there are other fees to consider. For example, the lowest refinance rates may be great for 5 years but interest afterwards may be a different story. Let’s say you want to refinance and you end up getting a federal refinance plan such as a cash out. However, you didn’t have 20% of your home purchased. In this case, you will have to pay out of pocket fees or pay closing costs in the back end of your mortgage. You could also request your lender to pay the fees in exchange for higher interest rates, which could raise your mortgage up in a certain length of time. Additionally, you can also get a cash gift to up to 6% of your loan amount if the fees do not go over your allowable loan to value ratio. If either situation is not feasible, you’re required to pay an upfront mortgage payment every month and an annual mortgage insurance payment to pay off the equity you took from your original mortgage balance.
If you have a conventional loan, it works a bit differently. Since you’ve built a good amount of equity from your initial down payment, you won’t incur these extra fees because you have sufficient funds to cover it in your equity. Closing costs can easily add on thousands of dollars to your mortgage. It’s no wonder why homeowners wait a while to build equity and see what refinance rates appeal most to their budget. Also, take note that a 15 year plan usually means higher interest rates, but a lower mortgage total. However, a 30 year plan means lower rates, but a higher mortgage total.
Why should you diversify your options (FHA financing)?
As in any financial decision, it’s wise to measure all options before you go through a plan of action. Rates will not always be picture perfect because the market is volatile at times. A federal and conventional lender both have different ways of setting rules and obligations. Your rates will be slightly different than your original calculations. Also, you will find that certain refinance plans affect your living options or even using your credit towards a different strategy. If you used a federal streamline refinance plan, the paperwork would be less strenuous because you can only use it toward your mortgage and not for investing or a cash sum. A federal cash out refinance gives you options to use cash from your equity at your own call.
Take your time to come up with a great financial solution for your own benefits. Meet up with different lenders to find the lowest refinance rates that work well for your mortgage.