If you borrowed from a financial institution and got a mortgage when interest rates were high, you can refinance your mortgage and save yourself quite a sum of money. Let’s say you have a mortgage for 30 years at an interest rate of 6%. The original amount of the mortgage you requested financing for was $200,000.
If you refinance by just one percent you will save as much as $125 per month on your mortgage payment. You can’t just call your lender and demand a lower percentage. Your lender will review several factors before agreeing to lower your interest rate. The lender will need to take a look at your credit history. Your credit score must be in the higher levels, you must have steady work with sufficient income, and you must not have a lot of extra debt besides your mortgage.
The instructions below are seven moderately challenging steps that will show you how to refinance your mortgage at the lowest interest rate you qualify for. Before continuing on to the seven steps you will need some information at your fingertips. I have listed those things below:
- Copies of your last two paychecks
Copies of any checks from other sources of income such as rental income
• Copies of any saving accounts such as a retirement account
• Copies of your savings account and checking account statements
• Copy of your most recent mortgage statement
• Copies of all your other loan paperwork such as student loans, car loans, etc.
• Credit card statements if you have credit cards
• Copies of the previous two years of IRS tax returns
Let’s get started on the first easy step.
Step 1: Put the documents that show your debt into one stack and the documents that show your assets and your income in the other stack. Your income and assets stack will include your savings account statement, your checking account statement, your retirement account statement, and other proof of income documents. Your debt stack will include anything that you are making payments on other than your mortgage like your student loans or your car payment. Don’t forget that your credit card debt goes into this stack, as well.
Step 2: Call your mortgage lender or any other lender that you want to apply for refinancing with. Tell the lender that you are shopping for the lowest possible interest rate for the refinance. Mortgage lenders can include the bank that you normally use for your checking and savings accounts or any other bank that offers mortgages.
Step 3: Your call will be transferred to the loan officer who will have questions for you to answer. Be prepared by having an approximation of your total debt and an estimate of your total income. Let him know how much the current balance is on your mortgage. He will ask for identifying information such as your social security number, the address on the property, and your contact information.
Step 4: The lender will need your authority to check your credit. This will give the lender a lot of information about how you pay your bills, including your mortgage payment. Your credit score will be a determining factor for the approval to refinance and for the interest rate the lender will offer. If you have a credit score in the mid 700’s you will probably be approved for a favorable interest rate. If your score is lower you may not qualify for a better interest rate than you already have on your home loan.
Step 5: Tell your lender that it is alright to have your home appraised. The lender may handle the appraisal for you or he may ask you to pay for the appraisal and have the new assessment forwarded to him for review. If you are going to fund the appraisal look online, in the phone book, or call the appraiser who set the market value of your home when you bought it. If your home value has decreased you may not qualify. The lender is requiring you to have at least 20% equity in your home before he will approve the refinance request.
Step 6: Make copies of all the documents that you gathered up before you began step 1. The lender will need them to verify that your debt is what you provided for an estimate when you called. He will also want to verify all your income before approving your refinance loan.
The lender will plug all this information into the equation that he uses to determine your debt to income ratio. The amount of the payment for the refinance loan will be included in these figures. You must pay less than 36% of your monthly income toward debt repayment. If you owe more the lender may not finance your new loan request. The lower this percentage is, the lower the interest rate you will be offered.
Step 7: If you and the lender have agreed on an interest rate that is more favorable than your current mortgage rate, you will need to close on the loan.