The recent dip in 10-year Treasury bonds is good news for homeowners ready to refinance a mortgage and first-time homebuyers. Whether you want to refinance your mortgage for a lower payment, apply for a cash-out refinance, or refinance your mortgage for a lower rate, now’s the time to take action.
Historically, a dip in Treasury yields translates to lower mortgage rates. Still, the economy is opening up, and rates have been near historic lows for months. Despite the downshift, mortgage experts predict rates to begin an upward rise soon.
Connect with a mortgage advisor to start the process early and lock in a low mortgage rate before they start to rise again.
Related: First-Time Homebuyer Advantages for 2021
How to Refinance Your Mortgage and Save Money in 5 Steps
Every borrower wants the best rate possible, and lenders will compete for your business if you’ve got a good financial track record. Borrowers with a good credit score and a low debt-to-income ratio will have leverage when deciding to shop around. But even if you’re financial picture isn’t where you’d like it to be right now, these tips will help you prepare.
When you apply for a mortgage refinance, the top three factors that will impact your mortgage application are your credit score, debt-to-income ratio, and home equity (loan-to-value ratio).
Take note of these five steps to leverage your knowledge and approach lenders with confidence.
Step 1: Protect your credit score.
Download a free copy of your credit report so you can resolve any errors or misinformation. If you have high consumer debt or multiple loans, pay down the balances to improve your credit score.
Keep making your payments on time and don’t take on any new debt or apply for new credit lines. Now’s not the time to open a new credit card or apply for a car loan. Keep your credit report as clean and consistent as possible when you’re ready to refinance.
Step 2: Shop around for the best mortgage refinance lender.
Just because rates are low doesn’t mean lenders will give you the best mortgage rate. Shopping for the best rate is a common strategy for most homeowners, but it’s smarter to shop around for the best mortgage advisor.
Yes, mortgage rates are one of the main factors borrowers consider when refinancing a mortgage. But the best loan terms are part of an overall package that goes beyond your interest rate. Fees, closing costs, points, and mortgage insurance are a few costs that can overshadow a low mortgage rate.
You don’t want to end up with a mortgage refinance that ends up costing you more and keeps you from meeting your long-term financial goals.
We recommend shopping around for the best mortgage advisor. Read reviews, check in with colleagues, follow up directly when you find a low rate.
A great mortgage advisor will talk with you about your financial and homeownership goals. Together, you can refinance your mortgage with a custom solution that checks all the boxes. You should be able to refinance your mortgage with a low-interest rate, a better mortgage payment, and loan terms that meet your financial goals.
- Do they deliver exceptional customer service?
- Do they offer the refinance product you want (fixed, adjustable, streamline, cash-out, etc.)?
- Do they understand your financial goals?
- Do they have great customer reviews?
Related: When is it a good time to change mortgage lenders?
Step 3: Compare mortgage refinance offers to find the best loan.
Advertised rates are helpful metrics to find out where the market is trending, but refinancing a mortgage can end up costing you a lot of money if you’re not careful.
So, shopping for the lowest rate won’t always get you the best mortgage refinance. Instead, compare your refinance offers side-by-side using the loan estimates provided by your lender.
The truth is, mortgage rates vary based on the borrower’s information, the loan product, and the lender. Certain lenders might advertise super low rates, but they might offer you higher rates than other lenders based on your credit score. The same goes for your debt-to-income ratio and your home equity.
When you apply for a mortgage refinance, you’ll receive a quote, also called a loan estimate. Your loan estimate will offer a line-by-line breakdown that shows the terms of your home loan.
Prepare ahead of time and review this sample Loan Estimate. All lenders use the same format, so this will make it easier to compare refinance offers.
Step 4: Estimate the closing costs for a mortgage refinance.
Refinancing your mortgage is about saving money for most borrowers. So if your mortgage refinance has a lower rate but high closing costs, it might not be a great solution.
Check out your Loan Estimate again to verify closing costs and any other fees that might be negotiable. Closing costs will be written in a different section and cover one-time expenses.
When you refinance a mortgage, many borrowers have the option to pay closing costs up front, roll them into the loan, or get a lender credit in exchange for a higher rate.
To find out which fees are negotiable, check out this sample Loan Estimate.
Closing costs typically include:
- Origination Fee
- Appraisal Fee
- Credit Report Fee
- Prepaid Homeowner’s Insurance
- Prepaid Interest
- Property Taxes
- Mortgage Insurance
Remember these are one-time fees that you wouldn’t incur without refinancing your mortgage. One way to know whether refinancing your mortgage will save you money is to calculate your closing costs.
Related: The Truth About Closing Costs and No-Closing Cost Loans
Step 5: Lock your rate when you apply for refinancing.
Lenders vary in how and when they offer mortgage rate locks, so be sure to ask your mortgage advisor about the terms. Often, borrowers have the option to lock in a mortgage rate early in the application process.
A float-down option often allows rate flexibility that protects the borrower: if market rates drop, the borrower’s rate “floats down” with the market; but if rates rise, the quoted rate stays secure. Mortgage lenders typically offer rate locks for 30 to 60 days.
Ask your mortgage lender about locking your rate and what happens if mortgage rates shift. If the refinance process takes longer than anticipated, you don’t want the uncertainty of a fluctuating mortgage rate in the mix.
Related: Your Complete Guide To Refinancing Your Mortgage
Refinancing a mortgage can help you reach your financial goals faster. Take a minute to clarify your goals to make an informed decision once you get a loan estimate from your lender. Keep your credit report in check, take a close look at closing costs, and lock your rate if possible. Most importantly, shop around for the right mortgage lender and make sure you’re comparing apples to apples when you evaluate the terms of your refinance.
To get the best refinance rates and loan terms, work with a local mortgage expert who understands your financial situation. We’d love to discuss your financial goals and build a custom mortgage refinance that saves you money.