September 4, 2020
8 MINUTE READ
Maybe you’ve heard that home loan interest rates are low. Maybe you’ve heard that you should consider refinancing your home loan. Yet, close to fifty percent of homeowners have never refinanced their home loan. If you’re sitting around waiting for interest rates to go lower before you decide to make a move I would encourage you to look at historical mortgage rates.
Looking at these graphs it’s easy to see that current interest rates are low. It’s also easy to see that they used to be much higher, peaking above 18% back in the ’80s. Rates have already climbed a little since reaching all-time lows in 2012 and 2013. Now’s not the time to guess which direction interest rates will go.
One thing that keeps homeowners from refinancing is that they don’t know how to get the best home loan rates. The process of finding a low interest rate and a great product for your situation shouldn’t be complicated. You should be able to easily compare your current home loan to a new home loan and see if it makes sense for you to make a change.
Sounds nice in theory, but it rarely works this way due to the out-dated processes of banks and lenders.
Usually, you see a banner ad for some ridiculously low interest rate on the internet and you decide to check it out. Once you go through and answer some questions your information is then handed off to a lender that will call you on the phone until you tell them to stop. Or, they’ll email you endlessly. Not an ideal way to start a relationship.
The reality is that the interest rate you see advertised is not the interest rate you’re going to get. There’s no way for a lender to know what you qualify for until you answer some basic questions. After you answer some basic questions you’ll still need to prove that you weren’t lying. Usually, this verification process requires a bunch of paperwork.
Bottom line… you don’t know what your actual interest rate is going to be until you’ve verified that your information is accurate. Based on your numbers the lender will then decide what interest rate you can actually get. Many factors come into play such as your income, current debt load, current loan-to-value ratio, credit score, credit history and current interest rates.
Let’s not forget that the actual loan product you pick has a big impact on your interest rate. Lenders advertise rates for 15 year home loans because they are substantially lower than a 30-year rate. The 15 year home loan with a 3.25% rate really reaches out and grabs you! The reality is that a 15 year home loan isn’t best for everyone.
Current interest rates are just a piece of the puzzle when it comes to getting a great interest rate on your home loan. So knowing all of this, how do you get the best home loan rates?
Here are some simple steps you can use to get the best home loan rates. Use them and prosper.
You probably already know that the higher your credit score the better interest rate you’ll get. But do you know how this translates into dollars in your pocket? This calculator is one of my favorites for showing clients how much money they can save by having a good credit score. Let everyone else worry about packing peanut butter and jelly sandwiches for lunch every day to save a couple of dollars. You should concentrate on increasing your credit score to really save some money. Do this and you’ll save thousands.
To get the best home loan rates you’ll want to get your score into the mid seven hundreds. This is where the best rates are. The big question is how do you get there? The best credit advice is the most simple. Pay your bills on time and eliminate credit card debt. You can’t do these things over night but they are part of a sound plan.
However, you can call all your credit card companies and ask them to increase your credit limit. Let’s say you have a credit limit of $1,000 and you currently carry a balance of $400 on the account. To the credit companies, it looks like you are utilizing 40% of your total credit. This isn’t good. If you can get the credit card company to increase your credit limit to $2,000 now your $400 balance only looks like you’re utilizing 20% of your total credit. Much better. This small amount of work could boost your score.
Points matter! Use the calculator I told you about if you don’t believe me. Just boosting your score a few points can make a big difference. Check out these results from a $300,000, 30-year mortgage. Just by going from a score of 759 to 760 I could potentially save around $14,000 in interest over the term of my mortgage.
Remember that the rates you see advertised are not the rates you’re going to necessarily get. Usually, companies advertise the lowest possible rate to hook you in. That means you might see lines in ads like “rates as low as” or “rates starting at.” You need to ignore these messages to a certain extent. Your current financials are more important than what the advertised rates are on the internet.
When you see a 15-year mortgage advertised as having a really low rate you should say “so what.” It doesn’t mean anything to you unless you absolutely know that a 15 year home loan is what you need and want.
Usually, you’ll want to refinance for the same amount of time that’s left on your current mortgage. If you have 20 years left on your current mortgage then you might want to consider a 20 year home loan. You probably don’t want to refinance into another 30-year mortgage if you’ve already paid 10 years of it off. You might actually end up costing yourself more money despite a lower interest rate.
Make sure to run the numbers on your home loan then decide which product is right for you.
When I was a financial planner I advised against trying to time the market. If your strategy is to try and time the market you will lose more than you win. It’s the same with interest rates. You can’t time interest rates with any kind of accuracy or consistency. And when a small move in interest rates can end up costing you thousands of dollars you’re better off not playing the timing game.
t look at those charts I shared at the beginning of the post. Common sense would dictate that we are in a low interest rate environment. Markets are cyclical and what goes up, comes down and what comes down will eventually go up. With that in mind, which direction do you think interest rates will move next?
Locking in your rate allows you to preserve your interest rate as you go through the loan process. With our online platform we provide you with a free 30-day rate lock and a free float-down provision. What does this mean?
The 30-day lock means that if interest rates move up at any time while your loan is being processed it will not increase your rate. You’re locked in at your low rate.
The free float-down provision protects you in the event interest rates go down. If you locked in a rate of 4.25% and rates drop to 4.15% you’ll automatically get the lower rate. This applies for the same 30-day period as the rate lock.
In order to lock in your rate you need to be organized with your paperwork and sign your disclosures promptly. Getting a free rate quote does not lock-in your rate and you could end up missing out. Our lock-in period starts after you sign your disclosures online. Using our online home loan refinance process this will take you less than 15 minutes compared to taking days with other lenders.
Think about it. You want to lock in that low 4.15% interest rate because you know rates won’t be this low forever. With GoRefi you can have that rate locked in less time then it takes to watch your favorite sitcom. In fact, you could lock in your rate while you watch it! With the other guys you’re looking at days of back in forth phone calls and having paperwork mailed to your house that you then have to fax or mail back. What if interest rates move up that week you were messing around with these guys? Their messy process just cost you thousands of dollars.
Get your credit under control and do whatever you can to boost your score. A few points can make a big difference. Ignore teaser rates and choose the product best for your situation. And finally, don’t try to time interest rates. Get your financial documents organized and choose the best rate for your situation then lock it in. Good luck!