5 Tips For a Better Refinance Rate--Regardless of Credit

Before you put your information online and apply for a new home refinance loan, make sure you are armed with the knowledge of how to secure the lowest of today's mortgage rates. By utilizing these five techniques, you may save yourself thousands of dollars in interest over the life of the loan.

1. Be Prepared. Have your loan documents ready, and make sure you do your part to make the transaction as simple as possible for your loan officer and their loan processing staff. They can more easily justify better rates and terms for you if they and their staff can process your loan more quickly and easily; remember, part of their job is providing loans to their employer whose value exceeds their cost. By having everything ready for your loan officer, you will acquire a better position from which to negotiate the lowest possible mortgage rate.
2. Know Your Credit...and Equity Levels. Refinance rates are largely based on your credit and how much equity you have in your home. Credit scores above 740 will have access to the best interest rates; if you are below 660, expect significantly higher rates. Borrowers with a loan-to-value (LTV) ratio below 65% will get the best deal; anything above 80% LTV is likely not possible unless you obtain an FHA or VA loan. In either case, if you are planning on borrowing cash with a home refinance loan, your loan terms may be different.
3. Improve Your Credit. Know your credit score and know that it can change somewhat for the better in the short term. As long as you don't have major derogatories (i.e., a bankruptcy or a foreclosure) on your credit, you may be able to improve your credit score with a "rapid rescore." Just speak with your loan officer about this option. Keep in mind that this may require you to pay down some of your short-term or other debt.
4. Shop Rates. All too often consumers go to their local bank to apply for a loan, and, without making any comparisons, assume that the offered terms are acceptable. However, banks have a captive audience with their clients--and they know it. Lower interest rates and much faster turnaround times may often be found by working with a mortgage broker who can place your loan with the bank that is offering the best rates and terms available to you in the market.
5. Consider Your Options. Today's mortgage rates are even lower for five year fixed loans. Are you planning to sell your home in the next three to seven years? If so, ask for an adjustable rate mortgage (ARM) to obtain lower rates. Right now, adjustable loans can be more than one percent per year lower than fixed rate loans, potentially saving you thousands of dollars in the few short years before you sell your home.

Whether you are considering refinancing your home for a lower rate, equity cash out, or debt consolidation, the key to getting the best terms is having the right tools up front. Make sure you are working with a knowledgeable loan officer and never be afraid to ask, "Is this your best deal?"

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