Be Aware Of Mortgage Refinance Rate Changes
Getting the best interest rate possible from a refinance depends on two factors: your credit score and the amount of equity you currently have in your home. The more equity you have, the better your interest rate, and the lower your monthly mortgage payment.
But looking a little more closely will reveal more information about lending and the rate you receive. Your lender looks at something called the loan-to-value (LTV) ratio when determining the percentage of your home's value that they will lend on.
The LTV Rate
If your LTV is between seventy and eighty percent, but your credit score is less than 700, you will likely not receive the best mortgage rate. In fact, you will pay a rate that's up to one quarter percent higher than the lowest available rate.
If you have a good credit score which is over 700, then the best interest rates can be had with an LTV of 60% or less. Should this be the case, you can save as much as one eighth off the lowest rates.
Things To Consider
The above information will apply mostly to standard mortgage loans which have a fixed rate, and which were obtained via Freddie Mac or Fannie Mae. As well, you will find that the rules are a little stricter if you are looking for a cash-out refinance option.
If you have a HELOC or second mortgage that you plan to keep after your loan's been close, it could result in your maximum LTV being reduced, causing a higher rate.
Avoiding The Low Rate Hype
It may appear that advertisements for low mortgage rates are everywhere once you have begun to think about refinancing. But no matter where you see these ads, it's important to not take them at face value. The onus is ultimately on you to ensure that you understand all of the terms and conditions associated with a refinance. This begins with understanding the details disclosed in ads for low rates.
How To Read Mortgage Refinancing Ads
A common headline for mortgage refinancing ads is "Mortgage rates are near 30-year lows - rates as low as 1%". But what this ad won't tell you is that this seemingly great rate will only be offered for an introductory period, which is usually very short. Taking advantage of this ad should include getting as many details as you can before you commit.
Another deceiving advertisement could come in the mail, disguised as an important notice from your mortgage company. But more often than not, the information will be from a competing lender which attempts to get your business with urgent statements such as "Open Immediately!". Mailers such as these should be reviewed carefully and the company identity confirmed before taking any action.
Last, but not least is the advertisement which congratulates you on being eligible to partake in exclusive interest rate reduction. Most often, official-looking letterhead and stamps will accompany such a message. But the truth is that it may not be legitimate. The quickest way to tell is to see whether the company is listed in your telephone directory or present on any official government lists online. If not, disregard this mailing.
It's a good idea to use a checklist to see whether an ad or mailing is legitimate. Ask yourself whether the ad mentions anything about prepayment penalties, monthly payment amounts for each month and whether they will increase, and the term of the loan.