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Tips of Getting a Low Interest Rate Mortgage

Considering the low interest rates, now may seem as though it would be the perfect time to apply for a new low interest mortgage. At the beginning of the year mortgage rates hit an all new low when they sank below 5%. Consider the large cash influx that the Fed has indicated it will be making, it is anticipated that mortgage rates will continue to be low for quite some time.

While those low interest rates can certainly be attractive, many borrowers are discovering that the process of nabbing those rates is anything but easy. This is largely because many lenders today are struggling to deal with regulations that seem to change almost overnight as well as homeowners who are struggling to pay their existing loans. As a result, credit requirements have increased and the number of loans that are available has decreased. Even so, low interest rates certainly present plenty of incentive to attempt to grab onto one of those loans. Considering the fact that if you took out an mortgage just two years ago when mortgage rates hovered around 6.5%, you could stand to save $150 per month on a $150,000 loan, it is easy to see why the pull toward applying for a refinance is so strong now.

One of the best things that you can do is to find out if you are even eligible for a refinance before you invest the time and money in applying for a new loan. Keep in mind that having equity in your home and a good credit score are the two most important components in being approved for a refinance. At a minimum, you will likely need a credit score of 740 and you should have at least 20% equity in your home. In the event that you do not have quite that much equity in your home then you may need to pay more upfront or face a higher interest rate.

It is also important that you understand the best places to look for a refinance when the time comes to look for a new loan. Remember that even if you have great credit it is still important to shop around in order to get the best rates and terms. This is primarily due to the fact that all banks tends to use a variety of different standards when it comes to underwriting loans.

You should know that if you are in the need of a loan that is more than $417,000, commonly known as a jumbo loan, then you will have a much more difficult time locating a low interest loan. In most cases, the rates for jumbo loans will be at least half a percentage point higher than what you would pay for a smaller loan.

It can also help to pay for some points up front. Paying for just one point, which is the equivalent of one percentage point, can actually help you to obtain a lower interest rate. Of course, you will need to determine whether paying for the point is worth the amount of money that you will save when you refinance for a lower interest rate.

In considering whether it is worth it, it is important to consider the exact amount of money you will save with the new loan each month, the total out of pocket expenses you will pay for the loan including paying for the point and how long it will take you to recoup those costs with the monthly savings. It is also a good idea to consider how long you plan to remain in the home to ensure that you will hold onto the home long enough to recoup those costs, which can often amount to at least several hundred dollars. If you think that you might sell the home within the next three years then it may not be worth it to refinance just to get a lower interest rate because you would not be able to recoup the costs in that amount of time. On the other hand, if you are planning to stay in the home for at least five years, then it very well may be worth it to go ahead and apply for the refinance.

While it can take some time to do all of the legwork involved in obtaining a refinance, the benefits can ultimately be worth it, especially if the difference between the new interest rate and your old interest rate is significant.



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