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Best Refinance Mortgage Rate – Improve Your Odds Of Getting A Low Rate

Obtaining a mortgage refinancing has several benefits. However, the only way to realize these benefits is to qualify for a low rate mortgage. Even though refinancing a home is ideal for securing a fixed rate mortgage, without acquiring a lower rate, you may not save on your monthly mortgage payment. If you are hoping to obtain a low rate mortgage, there are steps you should take.

Establish a Good Payment Record with Existing Mortgage Lender

When applying for a refinancing, the mortgage lender will carefully review your credit and assess your payment history with current mortgage lender. Individuals with a good payment record can expect a low rate on their refi especially if their credit score is high. On the other hand, if you have poor credit, and have submitted several late mortgage payments, a refinance lender may consider you a risky applicant.

Risky applicants may have their refinance application denied. If the application is approved, the lender will likely remit an offer with a high interest rate. In this instance, refinancing is not very beneficial. The ultimate goal is to save money. However, if the savings are minimal, it is not worth the costs to refinance.

If you are contemplating a refinancing, attempt to submit all mortgage payments on time. Furthermore, reduce unnecessary debts, which may boost your credit rating. Homeowners with a good credit score have a better chance of securing a low rate refi.

Compare Various Refinance Mortgage Lenders

Making a side-by-side comparison of various mortgage lenders is very effective. After requesting a mortgage quote, lenders assess an applicants situation and make them an offer. Lender offers will vary. By comparing lenders, you have the power to select the loan package with the lowest refi rate. Those who neglect comparing lenders risk accepting a bad refinancing offer.

Refinance When the Time is Right

Because of declining mortgage rates, many homeowners are jumping on the refinance bandwagon. However, now may not be the right time to create a new mortgage. Prior to applying for a new mortgage, you should consider a few factors. How long do you plan on living in the home? Will a refinancing create a noticeable savings? What is your credit standing? Do you have the funds to pay closing costs?

Refinancing while rates are low is great for obtaining a low, fixed rate mortgage or lowering monthly payments. However, if your current rate is comparably low, or you anticipate a move in the near future, refinancing may not be the wisest choice.

Adjustable rate mortgages (ARM), developed when mortgage interest rates were high, can help you finance the purchase of a home with low interest rates. An ideal choice for those expecting an income raise and decide to move in a couple of years, an ARM also increases your risk for higher payments. Fortunately, lenders also offer safeguards to limit some of your risk to excessively high interest rates.

ARM Features

An ARM starts with a low interest rate, up to 3% lower than a fixed rate mortgage. With lower rates, you usually qualify to borrow more than with a fixed rate home loan.

ARMs start with a fixed rate period and end with fluctuating interest rates as the years go by, increasing or decreasing your monthly payment. So a 3:1 ARM means three years of fixed rates with interest rates changing every year after that. Interest rates are based on an economic index, usually the rate on the T-bill or LIBOR, and the margin the lender adds to the index.

In order to protect borrowers from increasing monthly payments, mortgage lenders put in place safeguards. A point cap limits how much interest rates can rise monthly over the life of the loan. There are also maximum limits on how low rates can go to protect the lender.

Another safeguard is the dollar cap on monthly repayments. If for whatever reason, interest rates rise higher than the dollar cap allows, you may end up with a longer loan. Most financing companies also allow you to convert your ARM to a fixed rate mortgage after a predetermined period.

While an ARM has many benefits. For instance, interest rates can rise 4% or more over the course of your home loan. If you decide to stay in your home for several years, a fixed rate may offer lower interest costs in the longer term. ARMs is not predictable, which makes planning long term financing goals difficult.

Before you apply for an ARM, make sure you are comfortable with the level of risk involve. However, if you expect your income to rise or to move, then you may be saving yourself a lot of money in interest payments with an ARM.

Traditionally, homebuyers could look to two forms of mortgages fixed rate and adjustable mortgages. While there are now many more options, this article takes a look at the adjustable rate mortgage.

What is an ARM Loan?

An adjustable rate mortgage [ARM] is a basic mortgage with one important exception. With an ARM, your interest rate will start low but typically move up throughout the link of the loan. The timing of the movements is dictated by the terms of the loan. The rate may be adjusted every month, but more typical periods are every six or twelve months. Most adjustable rate mortgages also have a cap on the amount the interest rate can be raised in a particular period.

ARM Yourself?

A homebuyer has to be very careful when selecting an adjustable rate mortgage. Buying a home necessarily involves budgeting out how much of a monthly mortgage rate you can afford to pay. With an ARM, you have to keep in mind that your monthly payment amount will go up if the interest rate does the same. While you may be able to afford the loan now, what happens if the rate jumps two percent over the next two years?

In the current real estate market, potential rate increases are a troubling issue. In areas where the real estate market is dramatically appreciating, homebuyers are using ARM loans to get into homes. Put another way, they are using ARM loans to get a mortgage payment they can afford without giving real consideration to rate increases in the future. Mortgage interest rates have been at historic lows for the last few years. What is going to happen to all of these people when rates rise? It could make the savings and loans crisis of the late 80s look like small potatoes.

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how often the rates can increase and by how much. Try to determine whether you can afford payments if the rates go up significantly over the next few years. With Greenspan retiring, now is the time to be very careful when taking on mortgage debt.

Analyzing APR during mortgage refinancing or second mortgage loan shopping can be a very tricky proposition. Many people have come to believe that a loans APR, or “Annual Percentage Rate”, is the single most important factor in comparing mortgage loans. However, this is rarely the case, especially in today’s marketplace, explains Bob Peckenpaugh, Manager of CFIC Home Mortgage.

Annual Percentage Rate is defined as “the cost of consumer credit as a percentage spread out over the term of the loan. Most consumers have no idea what makes up this elusive number. APR is a valuable tool in comparing various mortgage loan programs, but it should never be relied upon as the sole determining factor in choosing a loan, for the following reasons:

1) Not all closing costs are calculated within the APR uniformly. According to Peckenpaugh, There is a huge variance among lenders, mortgage loan officers, and even states on which fees they include in their APR when calculating the loan. There is no standard among the mortgage industry, let alone among competing mortgage companies.

2) The costs themselves can be manipulated within the loan. For example, prepaid interest (the amount of pro-rated interest a consumer pays at closing for interest which will be earned from that date until the end of the month) can be represented as anywhere from 1 to 30 days, a potentially huge difference, especially on larger mortgage refinancing loans.

3) Manipulation of the title fees. Ordinarily, the title company’s settlement, or closing fee is an APR fee, while their title insurance cost is not. Peckenpaugh explains, Recently, in order to minimize the effect to the APR, title companies began simply decreasing their closing fee, while subsequently increasing their title insurance fee by the same amount, thereby reducing the APR.

4) Lack of industry awareness of what is accurate. Most mortgage loan or refinancing officers do not intentionally try to mislead, but inaccurate information could result in the consumer making a poor decision.

As opposed to APR, consumers would be better served by asking the following simple questions.

1) What is the mortgage interest rate?
2) What is the total mortgage loan amount?
3) What is the monthly mortgage payment (principal and interest)?
4) How much are the closing costs?

Generally, a written estimate covering all of the above can be generated by the mortgage loan-refinancing officer and provided to you in the form of a “Good Faith Estimate” and/or a “Truth In Lending Statement”. Then, you can compare these documents between mortgage lenders in order to determine the authenticity and accuracy of your quotes. For further mortgage financing or refinancing information, contact Bob Peckenpaugh, Manager, CFIC Home Mortgage, at 1-800-943-9472.