The best part about economic tough times is that the prime rate usually falls so low that it’s a great time to refinance your mortgage. Economic booms are a great time to sell, but when it comes to getting the lowest mortgage to refinance rates, the economic recession is the way to go. While the prime rate is low is a good time to get the best refinancing rate possible, you may not qualify for that rate if your credit isn’t stellar.
Perhaps you think that your credit is great because you’ve always paid your bills in a timely manner, however, many people don’t realize that a great interest rate relies on much more than timely monthly payments.
Credit scores are the number one factor in most lending decisions. They play a huge part in deciding the interest rate, origination fees, closing costs, and the amount of the total loan for which a borrower is eligible. Be aware though that the credit score may play a large part, but there are many factors that affect the score and timely payments are only 35% of it.
Part of getting a good interest rate, and fee terms, is knowing what your credit score values mean and approaching the highest score possible before applying for a mortgage or refinancing. A credit score depends upon many factors. While 35% of it is your credit history, another 30% is the total credit you have at the time of application and how the balances are used. The best possible scenario is you have one or two credit cards with high limits and low balances. The worst scenario is you have lots of low balance cards maxed out.
Close out your low limit cards and reduce the balance on your cards across the board. Keep in mind the last 35% of your score is a mix of what type of credit you have (mortgages, car loans > credit cards, personal loans), how long you’ve had credit and if you have any open applications. That means you don’t want to apply for a bunch of credit cards or refinancing options. It’s better to get your credit report and then inquire what terms a lender offers with that score. A good score of over 700 will net great interest rates and terms. Scores from 620 to 700 are decent and will likely get good to fair interest rates. The lowest mortgage refinances rate will occur at about 750-950. The FICO score isn’t your only concern when trying to get the lowest refinance mortgage rate, however.
When considering your options, check your debt to income ratio. This is your monthly recurring debt (don’t include utilities here), divided by your monthly gross income and multiply it by 100. That figure is a percentage and if it’s greater than 36% you’ll want to reduce that a.s.a.p. A good refinancing mortgage rate is usually offered at a debt to income ratio of 28% or lower.
Lastly, consider the different types of loans available. Crunch the numbers with worst-case scenarios if you’re going for any adjustable mortgage rate loans. If variable interest rates worry you, consider getting a fixed rate. The interest rates are higher, but at least payments stay the same. You’ll always be able to refinance again if you keep your credit clean.