How to Refinance a Mortgage At the Lowest Rate
Refinancing your mortgage loan can save you a significant amount of money. Homeowners who drop the mortgage rate on a 30-year fixed-rate $200,000 mortgage loan from 6 percent to 5 percent can save more than $125 a month. But getting the best interest rate on your refinance isn't automatic. You'll need a good credit score, high income, steady paycheck and low levels of debt.
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Things You'll Need
- Copy of your most recent mortgage statement
- Copies of your student, car and other loan statements
- Copies of your credit-card statements that show how much you owe and the amount of your minimum monthly payment
- Copies of two current paychecks
- Copies of any retirement savings account statements
- Copies of checks from any other regular sources of income, such as rent checks and settlement checks
- Copies of your federal income tax returns from the last two years
- Copies of your savings and checking account statements
Instructions
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1
Organize the documents that prove both your debt and your gross monthly income. These include copies of your most recent paychecks, last two federal income tax returns, current credit-card statements, savings and checking account statements, retirement savings account statements and other loan statements.
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2
Call a mortgage lender and say you want to refinance your existing mortgage loan to get the lowest possible interest rate. You can call the lender or bank currently servicing your loan, but you also can call other lenders or banks.
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3
Answer the loan officer's preliminary questions. A loan officer will need your Social Security number, property address, the amount of money you still owe on your mortgage loan, and an estimate of your gross monthly income and debt levels.
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4
Give your lender permission to run a credit check. This has become a key part of the refinance process. Lenders rely on credit scores, which reflect how well you've managed your finances in the past, to determine whether you qualify for a loan and, if so, the interest rate you will get. If you have a high credit score, generally in the mid-700s, you'll qualify for the lowest interest rates.
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5
Give your lender your OK to have your home appraised. A real estate appraiser will determine your home's current market value. Traditionally, lenders and banks have required homeowners to have 20 percent equity in their homes to qualify for a refinance. If your home's value has dropped, you might not qualify.
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6
Send in your financial paperwork from Step 1. Your lender will use it to verify your gross monthly income and the amount of debt you are carrying. If your debt, factoring in your new refinanced mortgage payment, totals more than 36 percent of your gross monthly income, you might not qualify for a refinance. The lower your debt is compared with your monthly income, the more likely you are to qualify for the best interest rate on your new loan.
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7
Sign the closing papers on your refinance and set a closing date if you're happy with the interest rate your lender or bank offers.
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Tips & Warnings
Don't be afraid to shop around when considering a mortgage refinance. You might find that some lenders are willing to give you lower interest rates than are others.
If you are turned down or offered a rate you think is too high, determine what you need to do to improve your credit score and financial status. The most important things you can do to boost your credit score are to pay your bills on time and to pay down your debt.
