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Looking for mortgage refinance tips? For the last 5 years there have been a host of ads that have proclaimed that interest rates are the "lowest ever." Most of the time, they were blowing hot air. Guess what? They really are the lowest ever right now. If you play your cards right, you can get one of the biggest financial windfalls in your life. Here are 5 mortgage refinance tips to help you.
Refinance into a 15 Year Mortgage
If you have a mortgage with more than 20 years left on it, your goal should be to shorten it to 15 years. Assume that you have a $300,000, 30 year mortgage that is 5 years old at a rate of 6.5%. 6.5% historically is a good rate, but you can currently get a 15 year mortgage for 3.75% with zero points. You have approximately $281,000 in principal left and your old payment was $1,896. On a 15 year mortgage whose best rate right now is 3.75%, you would pay $2,042 or 7.7% more. Paying a little bit more now will make you the proud owner, free and clear, 10 years earlier. If you don't have any issues making your payments, take advantage of the real opportunity and shorten the length of your loan.
Check Your Home Equity To Make Sure Your Not Underwater
Before you get excited about mortgage refinance, you really have to estimate your home's equity. Most people that have purchased a home in the last 5 years are going to have difficulty reaching an 80% loan to value ratio unless they previously had a 30-40% down payment. While we all think our houses are worth about the same or more than when we bought them, the reality is that homes nationwide have lost a significant amount of value. If you put 20% or less down and your house has lost value, refinancing into the best programs may be very difficult. Most of the people that are refinancing today have owned their homes for 7 or more years and even with the price declines, they still have more than 20% home equity.
Refinance: Better Have a Good Credit Score and Income
Unlike 5 years ago, if you want the best mortgage rates and a smooth process, you better have documented W-2 income and stellar credit (think 740+ credit scores). Banks and credit unions have different standards, but your rate will be dependent on your credit score. If you had excellent credit when you bought your home, but it has deteriorated by as little as 20-30 points, you may not get the best rates. While lower rates might help you financially, don't think that any bank will give them to you if you have been late on credit card or mortgage payments. Before you think about refinancing, work on improving your credit score. If you are self-employed, put together a "package" including historical tax returns, lease agreements for rental income, and any contractor agreements stating the amount you are being paid. Some banks shy away from self-employed because they feel they represent a higher risk since self-employed income can drop dramatically.