Low Rate Mortgage Refinance Tips

If you bought your home a few years ago, you may be envious of the current low interest rates – in some case as low as 3.65 and 4.31 percent. Well, you, too may be able to secure these rates, simply by refinancing. Even though the Fed recently pledged to keep interest rates low into the near future, there’s no guarantee that tomorrow’s rates will be better than today’s. So, how do you get these low rates? Here are some tips to help you achieve the lowest mortgage rates for refinancing while you still can.

1. Good Payment History

You’ll be in the best position to refi to a lower rate if you’re current on your monthly mortgage payments. This is especially important if you’re taking advantage of the FHA mortgage refinance programs, as payments must have been on time to qualify for the best rates and the smoothest process.

And, of course, good credit helps here, too. Get a copy of your credit report before you apply to refi, in case there are mistakes or other things you need to clean up. Typically, the higher your score the better risk you are to the lender and the more leverage you have in securing the best mortgage rates. People with lower credit scores almost always pay higher rates.

2. Shorter Term

While a 30-year conventional mortgage is the most popular, and often the most prudent, way to go about buying a home. But have you considered a shorter-term loan? Your payments will be higher, but you’ll pay less interest – perhaps tens of thousands of dollars less – over the life of the loan. A 20-year, 15-year (or less) home mortgage loan is a great option if you can afford to make the payments long-term. Plus, your home will be paid off in half the time!

At the time of this writing, mid-November 2011, rates were at near-record levels for several types of loans. A few years ago, 5.5 or 6 percent was considered a great rate. On Nov. 9, the Mortgage Bankers Association reported decreases in the rates for 30-year fixed rate conforming loans (4.31 percent), 30-year FHA-backed mortgages (4.09 percent), and 15-year fixed-rate loans (3.65 percent). As you can see, the shorter the loan term, the lower the interest rate.

3. Adjustable Rate

By opting for an adjustable rate mortgage, rather than a fixed-rate loan, you can secure some of the lowest possible interest rates. Last week, 5/1 ARMs (locked in for five years before an annual “reset” kicks in) decreased to a 3.01 percent interest rate. Be aware that, while the initial interest rate is quite low, it (along with your monthly payments) will eventually rise. If you plan to be in your home for a long time, or have any concerns at all about your long-term financial health or income, this might not be a good option for you. Ask your mortgage professional for details.

4. Pay the Points

Paying “points,” or an amount equal to 1 percent of the loan amount, almost always translates to a lower interest rate. While some borrowers simply don’t have the cash on hand to bring to closing, if you can rustle up enough to pay a point or two, you’ll likely save in the long run.

5. Government Programs

For decades there have been government programs to help with refinancing, but recently more options have been added to the mix. New legislation, combined with existing programs, aims to help Orange County, Ventura, and Los Angeles mortgage holders (and borrowers elsewhere) lower their interest rate and monthly payments.

If you need an FHA mortgage refinance, there are special programs for that – borrowers are allowed a higher loan-to-value ratio, and the “streamline refinance” process may also be an option. You can learn more at the U.S. Department of Housing and Urban Development (HUD) website, or ask your mortgage professional. There are even options for underwater borrowers

It doesn’t matter if you’re planning to refinance Orange County, Los Angeles, or Ventura County property. The rules are the same, and your mortgage professional can help you sort out the details and get you into the best refinance loan for your situation