How To Get A Low-Cost Mortgage Refinance – Forbes Advisor – Technologist

By refinancing your mortgage, you may be able to reduce your interest rate, adjust your repayment terms and make your monthly payments more affordable.

However, snagging a lower interest rate isn’t guaranteed, and the closing costs of a mortgage refinance can eat into your savings.

What Are the Costs of Refinancing?

When you refinance your mortgage, you’re essentially taking out a new mortgage to replace the first. Just like with your original mortgage, there may be closing costs associated with your new loan. Closing costs generally run between 2% and 5% of the loan amount.

Some of these costs include:

• Origination fee. This covers the cost of processing your loan and may equal 1% to 1.5% of your loan amount.
• Appraisal fee. An appraisal assesses the current market value of your home and may cost around $300 to $400.
• Survey fee. You might need to cover this cost to determine the boundaries of your property. It could run anywhere from $150 to $400.
• Credit report fee. A lender checks your credit to determine your mortgage refinance approval and interest rate. This generally costs between $25 and $75.
• Title search and insurance fee. You’ll have to pay for title insurance on your new home loan, which could cost $300 to $2,000 or more.

Some lenders also give you the option of purchasing discount points to reduce your interest rate. The cost of each discount point equals 1% of your loan amount.

Discount points can be worth it if you plan to stay in the house for a long time, but they may not save you money if you’ll be moving within a few years.

How To Lower Your Refinancing Costs

You can lower the cost of refinancing by taking the following steps.

1. Improve Your Credit

A good or excellent credit score will help you qualify for a competitive mortgage refinance rate, while a fair or bad score will lead to a high interest rate or not qualifying at all. To improve your credit score focus on:

• Paying your debts on time. Your payment history makes up 35% of your FICO score. By paying your debts on time and avoiding late payments, you can protect and boost your credit.
• Reducing your credit utilization. The amount of credit you’re using versus what’s available to you also impacts your score. If you have high credit card balances, aim to pay them down. Try to keep your credit utilization below 30%.
• Not closing old accounts. The length of your credit history makes up 15% of your FICO score, so avoid closing old credit card accounts that are in good standing.
• Disputing errors on your credit report. Review a copy of your credit report from AnnualCreditReport.com to see if it contains any reporting mistakes. If you find any, you can file an official dispute to try to have them corrected.

Lenders also like to see a low debt-to-income (DTI) ratio, preferably below 36%. If you can pay down your debts or increase your income, you could reduce your DTI and potentially qualify for a more affordable mortgage refinance loan as a result.

2. Shop Around

Rather than automatically applying with your current mortgage provider, shop around with multiple lenders to find the best refinance rate and terms. According to Freddie Mac, getting at least two rate quotes can potentially save you $600 on your loan every year, while getting at least four may save you $1,200. The Consumer Financial Protection Bureau recommends comparing offers from at least three lenders.

If you find a good rate, try to lock it in so it won’t increase before you’ve closed the loan.

3. Consider a No-Closing-Cost Refinance

As you search for a low-cost mortgage refinance loans, you may come across offers that advertise no closing costs. These loans don’t require you to pay closing costs upfront, which may be welcome if you don’t want to drain your savings.

However, they don’t necessarily cost less than mortgage refinances with upfront closing costs. Instead, the lender makes up the closing costs by rolling the fees into your principal loan amount and charging you a higher interest rate.

A higher rate and loan balance will result in increased costs over time, even if your initial costs appear lower. In general, a no-closing-cost refinance could be beneficial if you plan on moving out within five years or fewer. If you’ll be staying in your house for a long time, though, this type of loan will likely cost you more.

4. Negotiate With Your Lender

While there’s no guarantee of success, it’s worth contacting your lender to see if you can negotiate your closing costs. Your lender may agree to reduce or waive certain fees, especially if you’re a repeat customer or can show them that another lender has given you a more competitive offer.

When Does Refinancing Make Sense?

There are a variety of circumstances where refinancing a mortgage can make sense. For instance, it can be beneficial if:

• It reduces the amount of interest you pay, either by lowering your interest rate or shortening your repayment term
• You get a more affordable monthly payment, whether by reducing your rate, lengthening your repayment term or both
• You’re able to get rid of private mortgage insurance or FHA mortgage insurance premiums
• You meet another goal, such as cashing out your equity or switching from an adjustable rate to a fixed rate

Use Forbes Advisor’s mortgage refinance calculator to crunch the numbers and see if refinancing would save you money. Enter the monthly payment, interest rate and balance on both your current mortgage and new loan to see the difference in costs. You can also factor in closing costs, such as the application, appraisal and attorney fees.