When you refinance your mortgage, you will save more money if the interest rate is low. But not every loan to refinance is the same. Follow these three tips when you want to refinance to get the best interest rates.
- Refinance Your Entire Mortgage
If you refinance your whole mortgage, you will be able to get the best rates. If you have two mortgages or a home equity line of credit, your risk and rates will go up.
But if you have a great rate on one of your mortgages, you might not want to combine them. Take the time to get estimates for both types of loans. In just a few minutes, you can hear back from lenders and know which option is best.
- Don't take money out of your equity
Your refinance rates will also go up if you cash out some or all of the equity in your home. So keep that equity while you try to get a new loan. It works a lot like the down payment you made on your first home loan. The better your rates are, the more equity you have.
If you want to use your equity, you could get a separate loan, like a home equity line of credit, after you refinance. So, you won't have to pay a higher rate on the whole amount you owe.
- Use points to bring down your rate
Like with your first mortgage, you can buy points to lower your rates. This is a little risky because you usually have to keep the loan for seven years to get your money back. Compare different loan offers to make sure this is the best choice. Find out how much points cost and how much you could save.
Aside from these tips, you can also get a lower interest rate by shopping around. Each lender looks at refinancing applications in a different way, so you can get a better deal if you shop around. Start by getting a quote for a loan, and then compare the numbers, including the interest rate and closing costs.
Just keep in mind that the loan with the lowest interest rate isn't always the one with the lowest cost. Consider the cost of fees to make sure you will come out ahead, especially if you plan to sell or refinance in a couple of years.
