How to Pay Off a Mortgage and Get a New One With Low Rates

Whether you plan to refinance your current mortgage loan or sell your home and buy a new one, there are ways to quickly pay off a mortgage loan and obtain a new one with a low rate. The key is examining all your options and choosing the best lender and loan package.

Instructions

1. Improve your credit. Before applying for a new home loan or a mortgage refinance, order a copy of your credit report and check for inaccurate information. Several websites offer free reports (see Resources). If necessary, make credit improvements such as paying bills on time, eliminating debts, paying off collection accounts and limiting credit inquiries. Every credit inquiry reduces your credit score by 5 to 10 points (and remains on your record for two years).

2. Start a savings account. You'll need cash on hand for specific mortgage-related fees such as the application fee, home inspection fee, appraisal fee, title search fee and, in some cases, a down payment. Put money aside each week into this savings account.

3. Apply for a mortgage refinance. One of the quickest and easiest ways to pay off an old mortgage loan is to apply for a refinance. Refinancing can provide extra cash to pay off debts and lower your interest rate. You can refinance with your current lender or choose a new lender. Refinancing with an existing lender is beneficial, and they'll likely waive a few fees and grant a quicker approval.

4. Sell your home. If you plan to purchase a new home, contact your real estate agent to sell your current property first, then use the proceeds to pay off the mortgage loan. To sell the home in a slow market, consider making a few home improvements or offer to pay the buyer's closing cost.

5. Compare interest rates. Regardless of whether you decide to sell your home; pay off the loan and buy a new home; or apply for a mortgage refinance, it pays to compare rates. Speak with a mortgage broker or lender, both of whom can provide quotes from several lenders. Quotes feature estimated interest rates, mortgage payment, loan term and settlement fees.

6. Agree to pay discount points. If you plan to stay in your home for an extended period, consider paying points to reduce the mortgage interest rate. Discount points cost 1 percent of the mortgage amount, and this upfront fee is paid at closing. The more points you pay, the lower your mortgage rate. Although this increases your out-of-pocket expense, you'll save money on interest payments over the years.

Resources

• Free credit reports from Annual Credit Report