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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