Refinancing a home mortgage loan must provide the borrower with the results he is looking for. A reduction on the amount of the monthly payments or reductions on the amount of money spent on interests in the long run are determined by different mortgage loan variables. However, one of the most important ones is undoubtedly the mortgage refinance rate. The interest rate is determined by several factors and will determine the convenience of refinancing the mortgage loan or the lack of it.
Mortgage Refinance Interest Rates – Different Loan Types
The first thing to note is that the interest rate will not only depend on the lenders but also on your credit score, market conditions and the loan type you choose. There are different mortgage loan types and each one will present a different rate due to the higher or lower costs associated with it. One variable to consider is whether your mortgage refinance will increase the amount owed or not. Cash-out refinance loans may provide you funding up to 100% of the property’s value but anything over 80% will imply a charge for PMI that will turn the loan more onerous.
Furthermore, the interest rate on your mortgage loan can be variable or fixed. This will impact the interest rate figure as variable rates tend to be lower than fixed rates. The length of the loan will also modify your interest rate. Generally speaking, longer repayment programs imply lower rates while shorter repayment programs imply higher rates. This is due to the fact that longer repayment programs imply lower payments that are more affordable and thus present lower risks of default. Also since the longer repayment programs imply higher overall interest payments, the lenders can feature lower interest rates and still get similar or higher revenues.
Getting Better Rates With Simple Rules
Basically, your credit score will influence your interest rate outline a great deal and thus, you should try to keep your credit score as high as possible. Sometimes if you are not in a hurry, it is advisable to try and improve your credit for six months and only then request a refinance home loan. On small loans this may not make sense but on mortgage loans a minimum variation on the interest rate implies thousands of dollars on interests every year.
The refinancing amount, points paid or down payment issue is also an interesting factor. As a general rule, the higher the initial payment or lower the refinancing amount, the lower the interest rate you will have to pay for the money owed. Moreover, any refinancing that implies less than 80% of the property’s value, excludes the need for purchasing private mortgage insurance and this really reduces the costs associated with the transaction. Thus, if you have the money or can obtain it by other means (family, friends, etc.), it is a smart move to reduce the amount of money you are borrowing so as to get a better deal.
Finally, the best solution to obtain a low interest rate is to shop around for a lender. Just do not close your refinance mortgage deal with the first offer you receive, compare prices, bargain with lenders, ask for loan quotes and share them with other lenders to get a better offer. This is the only way to make lenders compete for your business so you can get a good deal. If you want the interest rate to go down, you will need to work for it.