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As a homeowner with a mortgage, you probably already know that the lower your interest rate, the lower the cost of purchasing your home. What you may not know, however, is that interest rates are at their all time lowest right now, and that makes now the best time to refinance your mortgage to lock in a new, low rate that can save you thousands of dollars over the course of your mortgage lifetime.
And with all of the government programs that are now in place to help homeowners, even those with less than perfect credit, there is additional incentive for you to get out of that older, expensive mortgage or adjustable rate mortgage - doing so can lower your monthly payments and allow you to negotiate more favorable terms.
Interest rates on the most popular mortgages (like a thirty year fixed rate loan) are falling below five percent, which is the lowest that have been seen in over fifty years. Any way that you look at it, current mortgage rates are a good deal and (depending on the size of your mortgage) can save you a ton of cash in the long run. Getting these low rates is not that difficult and most homeowners will qualify.
You FICO Score And How It Factors In
The lowest of the low rates are given to those with great credit, naturally. But if your credit is less than great, you can still qualify for a lower rate than what you are paying now. To get the very best rate, you will need to make sure your FICO score is as high as it can be. Do this by pulling your credit report from all three of the bureaus (Experian, Trans Union, and Equifax). Check for errors immediately and notify the bureau holding any erroneous information immediately.
Additionally, check the balances on your credit cards. Having too much credit extended to you is detrimental to your credit score, because it effects your credit utilization, which is the amount of your available credit that you have used. Credit utilization actually accounts for a whopping 1/3 of your credit score, which means that paying off the balances on some of your credit cards can raise your score fast.
Home Equity Is Important In Refinancing
In general, to refinance your mortgage, you should also show that you have at least twenty percent equity built up in your home, as based on the current market value that your home is appraised at, which may be different than the amount that your home appraised for when you purchased it as home prices have fallen. Equity is the amount that you have paid thus far on your mortgage, minus interest.
For those homeowners who do not have enough equity, refinancing is still a viable option if they are willing to purchase mortgage insurance from a private party. To determine whether refinancing with the additional requirement of purchasing mortgage insurance is cost-effective for your situation, simply figure the amount that you will save in total over the life of your mortgage by refinancing, and subtract the cost of maintaining mortgage insurance. If you see significant savings, you should definitely refinance. |
