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How do I get the most out of my mortgage refinance?

By Sponsored by Credible - which is majority owned by our parent, Fox Corporation, and is solely responsible for its services.

If you’re thinking about buying a new home or refinancing your current mortgage, now may be a good time to take the plunge because interest rates may not stay this low for very long. (iStock)

The pandemic flipped the economy on its head. On a positive note, mortgage rates hit record lows — and with these lower rates, now is the perfect time to refinance your mortgage.

That’s good news if you're thinking about buying a new home or refinancing your mortgage. Over the past couple of weeks, however, mortgage rates have essentially flattened, and there’s no sure way to know if they will stay flat, drop again, or rise.

If you're looking to get the most out of a mortgage refinance, then, the first thing you should do is utilize a multi-lender shopping site like Credible, which can compare rates and mortgage lenders to ensure you get lower rates and save money on your monthly payments and over the life of the loan.

Once you've navigated to Credible.com, consider taking these steps.

Mortgage refinance: 5 ways to set yourself up for success

Although mortgage refinancing rates are low, that doesn’t mean you will qualify for the lowest rate set by your mortgage lender. In order to get the most out of a refinance and to meet your financial goals, you're going to want to potentially take these five steps:

  1. Improve your credit score
  2. Compare rates and shop for mortgage lenders
  3. Switch to a new loan term
  4. Consider a fixed interest rate
  5. Buy mortgage points

1. Improve your credit score

It’s amazing the value a great credit score has. It’s the first thing most mortgage lenders look at to qualify you for a mortgage refinance and set a rate. So, if you're boasting a high credit score, then you're more likely to snag lower rates on your refinance.

See what kind of mortgage and refinance rates you qualify for today.

HOW DOES REFINANCING YOUR MORTGAGE IMPACT YOUR CREDIT SCORE?

If you want the best interest rate on your mortgage refinance, but you have bad credit, you can boost your credit score by doing the following things.

Having more than one credit card can actually improve your credit score (as long as you pay your bills on time and actively purchase with your cards).

With Credible, you can also browse different types of credit cards — from cashback to rewards cards. If your credit is in good shape, then you may want to consider opening another account. 

WHAT APR MEANS ON YOUR CREDIT CARDS

2. Compare rates and shop for mortgage lenders

A good way to make sure you’re getting the best rate possible on your mortgage refinance is to shop around. Keep in mind that each time you actually apply, either online or in person, your credit score will take a slight dip. But it’s only temporary. If you work with lenders who follow the FICO scoring model, you have 45 days to shop. During that time, each credit check will only appear as one single inquiry on your credit report. 

If you’re considering buying or refinancing, now is the time to take action before rates jump. Explore your mortgage refinance options by visiting Credible to compare rates and mortgage lenders in one place.

HOW MUCH CAN YOU SAVE BY REFINANCING YOUR MORTGAGE?

3. Switch to a new loan term

When you refinance from a 30-year mortgage to a 20-year or 15-year mortgage, you’ll pay off your loan much faster and save a lot in interest. If you refinance your 20-year or 15-year mortgage to a 30-year mortgage, your monthly payment will be lower, but you’ll pay more interest over the term of the loan. 

You may decide to refinance your 30-year loan to a new 30-year loan. Your payments will likely be lower, but you’ll end up spending more in total interest because you are combining the terms of your original loan and your refinanced loan. 

If you’ve decided that refinancing your home loan is right for you, visit Credible to find personalized rates and mortgage lenders all in one place.

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4. Consider a fixed interest rate

Refinancing your mortgage might make sense if you want to exchange your Adjustable Rate Mortgage (ARM) for a fixed-rate mortgage. This is especially true if you think interest rates will increase anytime soon. What makes this decision so hard is that you will pay closing costs and other fees at closing. Plus, you have no way of knowing the future interest rate on your ARM. That said, if history is any predictor, interest rates won’t stay this low forever.

5. Buy mortgage points 

Because interest rates are so low, buying mortgage points to lower your rate may actually be counterproductive. That’s because you’ll pay interest on the points you roll into your loan (unless you pay the cost upfront at the time of closing). 

Each point you buy costs 1% percent of the total mortgage amount. So, one point on a $450,000 mortgage would cost $4,500. As one point usually lowers the interest rate by 0.25%, a 3.50% interest rate would become 3.25% for the life of your loan. 

Want to cash in on interest rates this low while they’re still available? That’s probably a good idea. But there are other considerations to think about:

  • Will you qualify for a lower rate? 
  • Can you afford the closing costs?
  • Will you be getting a lower interest rate compared to your current rate?
  • Will your savings over time justify the upfront costs?
  • How long do you plan to stay in your home?

If you’re not sure this is the best time to refinance your mortgage or buy a new home, visit Credible to get in touch with experienced loan officers and get your mortgage questions answered.

HERE'S WHY YOU SHOULD REFINANCE YOUR MORTGAGE RIGHT NOW

Today's mortgage and refinance rates

Right now, the weekly average for a 30-year fixed-rate mortgage is 2.75%, while 15-year mortgage rates are holding steady at 2.12%, according to Freddie Mac. That’s quite a difference from one year ago when the 30-year mortgage rate was 3.69%, and the 15-year mortgage rate was 3.15%. 

When you consider the numbers, you may not think a percentage point would make much of a difference to your monthly payment, but it does. 

For example, if you have a $400,000 home with a 30-year mortgage at an interest rate of 2.87%, your monthly payment will be $1,658.00. Your monthly payment at an interest rate of 3.69% will be $1,838.87. That’s a difference of about $200 per month. 

See what your estimated monthly payment will be using our mortgage refinance calculator.