So, you’ve been living in your home for a few years since securing your home loan, and your credit score has increased! Now, it’s time to look into securing a better interest rate. First and foremost, it is important to understand how your credit initially impacts your mortgage rate.
Credit Score and Your Mortgage
Your credit score is a financial tool. It directly affects the ease at which you are able to secure financing. It also has a significant impact on your interest rate. It can be difficult to pinpoint what is and is not a good credit score for a low-interest rate. This is up to specific lenders, but it all comes down to the higher your credit score, the better the interest rate that you qualify for will be.
There are many calculators you can use to determine what a loan costs at different interest rates such as this one: Loan Comparison Calculator.
A mortgage refinance is the process of taking out a new loan to pay off the previous mortgage loan that you took out on your house. Typically, if your credit score has improved, even by just a few points, you can qualify for a lower interest rate. This will help to save you a lot of money paid to interest over the many years of your mortgage length.
Simply put, if your credit score was low, or just lower than it is now when you bought the home, you are likely to have locked in a higher interest rate than you qualify for today. That is why many people will purchase a home with a lower credit score, make a series of on-time payments over the course of a year or two to establish the ability to pay the loan and boost their credit. This shows responsibility. They will then benefit from a refinance.
Current Interest Rates
It should be noted that it is also a good idea to take a look at the current market mortgage and refinance interest rates. Coupling an improved credit score with lower overall interest rates is a win-win. The overall goal is to lower that payment and doing so at the best time will save you cash in the long run.
You can always check the current mortgage interest rates HERE.
Mortgage Refinance Process
To refinance, take a look at where you would like to be and do your research to determine the feasibility of that number by taking into account your credit score and the current market analytics. Know what your exact credit score is. Look at what your equity in your home is in excess of what you owe the bank on your current mortgage. You can do this by checking your mortgage statements for your current balance. From here, you can work with a real estate agent to determine the current estimated value of your home.
It is important to note that after finding a lender that you would like to go with for your mortgage refinance, many lenders require an appraisal of your home. You will have a closing for this mortgage, similar to that of your first mortgage. It is not a terribly long process, but it certainly requires some assistance from the lender.
Mortgage Refinance Benefits
After all, is said and done, your mortgage refinance not only secures a better interest rate, but it helps to create more cash available to you each month after you pay your lowered monthly mortgage. You may have even been able to refinance into a lower term, allowing you to pay off the home faster. This was all made possible by boosting that credit score!