How to Find the Best Refinance Loans for Lowering Interest Rates and Payments
Thirty years ago, most Americans were happy if they could find any mortgage interest rates below 19%. Ten years ago, many American homeowners and homebuyers were equally happy to find interest rates below 9%.
Today, we are enjoying the lowest interest rates on mortgage loans in history. The cost to own a home has been cut nearly in half — for those homeowners and homebuyers who can qualify for financing.
Consider how a $110,000 30-year fixed-rate loan in 2005 with an interest rate of 7.50% would have monthly mortgage payments of $769.14. That same mortgage loan today could refinance to a rate of 4.25%, for a payment of only $541.13 — a 30% drop!
Unfortunately, refinancing has also become more challenging for many homeowners and property investors. This is particularly true for homeowners whose mortgage are now “under water” or “upside down.”
The good news is that there’s hope for your home, even if you’ve lost most of your equity or seen your credit grades get dinged. There are options and opportunities for more homeowners and property investors to refinance to a lower rate and payments. And this section provides tips and tactics for successfully finding the best refinance loans on the market today.
FHA Refinance Loan Opportunities
Not so long ago, many people looked down on FHA loans as something that only low-income Americans would use. But just as it did during the Great Depression, the Federal Housing Administration (FHA) has taken the lead during the “Great Recession” to help American homebuyers and homeowners hold on to their dreams.
FHA refinance loans now offer some of the most generous and competitive refinance loans now available for American homeowners. Qualified homebuyers can now buy homes with less than 3.5% down payment, using FHA loans. But FHA also offers the highest loan-to-value (LTV) limits for refinance loans, going as high as 97.75% LTV for “rate and term” (no-cash-out) refinances.
FHA loans will also lend as much as 85% LTV for ($85K on a property worth $100K) for cash-out refinance loans.
Compare interest rates
The web has given consumers more tools for more powerful comparison shopping. A simple search on Google and Bing can give you the current average interest rates offered on the most popular residential mortgage loans today.
More importantly, there are several online services that will give you competing mortgage interest rate quotes from mortgage companies and brokers in your area. This is perhaps one of the best options available for finding the lowest refinance interest rates in your market.
As soon as you decide on one mortgage loan provider and finally give that loan officer your social security number (so he or she can run your credit report for a preliminary approval), make sure to get a rate lock commitment right away.
Interest rates fluctuate daily. It’s true that your interest rate may be lower if you wait until right before the closing to lock it in, but it could also be higher. With interest rates at historic lows, why bother gambling? The wise move, if you find a great interest rate (after comparison shopping) is to lock it in right away.
Of course, keep in mind that rate lock commitments are only good for a defined period, usually 21 to 30 days. To ensure that you are able to close your loan in that period, make sure you have all your required documents ready — before you even start shopping.
Lower closing costs
Our article on How to Save Money on Your Mortgage Loan dives into a great deal of details on how to save hundreds of dollars on your mortgage loan closing costs.
The main lesson to understand from that article is that there are many ways to save money on your refinance loan’s closing costs. But most mortgage brokers and lenders won’t bother telling you about them, because it’s either too much of a hassle or will cost them in terms of some of the junk fees they charge.
Don’t be afraid to ask and, in some cases, even demand discounts, especially on services that were basically repeats of what you paid for during your recent purchase.
Review consumer reviews
Perhaps the biggest impact of social media on the commercial scene is through the growing popularity of customer reviews. From college students reviewing their professors to expectant mothers reviewing pediatricians, it’s easier than ever to get consumer reviews of mortgage lenders, brokers and loan officers.
In addition to comparing rates, you should also check up on what other homeowners have said about your top choices. It doesn’t matter if a mortgage provider offers you the lowest interest rates in your state: if they’re unable to successfully close your refinance loan as promised, you’ll end up wasting a lot of time and money.
To start, you can go to Yelp.com or Angie’s List to see what forum members may have said about your top choices. An even simpler way is to just do a search for the mortgage company’s website on Google or Bing. Google collects customer reviews from various websites (including Yelp and Yahoo), and then provides a summary page of customer reviews. When you see the Google entry for a mortgage company website, look immediately to the right of the title to see if there are any reviews available.
No website? Then make sure to check with your state mortgage company licensing office to ensure that both the mortgage company and the agent are licensed in your state… and in good standing.
Options for damaged credit
Depending on the severity of your credit damage, you may still be able to refinance to a lower rate immediately (using an FHA loan).
If your credit scores are really low and you’ve had some late payments on your mortgage, you may need to wait a little longer. For a detailed guideline on how to rebuild damaged credit, visit CreditRehab411.com to take advantage of their free online resource.
Creditors view borrowers with damaged credit as a higher risk, which typically results on higher relative interest rates and lower loan-to-value (LTV) limits. But some lenders are more forgiving if your property has a lot of equity.
In the worst case scenario, you will have to put in the time to rebuild your credit. It won’t be easy, but it is very feasible and realistic. As the saying goes, “time heals all wounds,” but there are some steps you can take to speed up the healing process.
You can also view the article on Refinancing with Damaged Credit for more information.
Options for “upside down” mortgages
If your mortgage loan balance is now greater than your property’s current market value, you’re not alone. Underwater mortgages have become the unforgettable symbol of the housing crisis.
By some estimates, nearly 1 out of every 5 American homeowners have upside-down or underwater mortgages. This rate will drop slightly as some of those homeowners are forced into foreclosure or opt for a strategic foreclosure.
The majority of these homeowners, however, will have to ride out the storm and wait for housing prices to start climbing again. Fortunately, even if your mortgage is underwater, you may still opportunities to refinance to a lower rate.
For more information, please see the Refinancing Underwater Mortgages article.
