If you have a mortgage loan with an interest rate 2, 3, even 4 points above the current average, refinancing may be in your best interest. When mortgage loan interest rates began to decline in the early 2000's, many homeowners chose to refinance their homes. Refinancing for a lower interest rate equaled a lower monthly payment.
How Credit Rating Affects Mortgage Loan Interest Rate?
Mortgage companies review an applicant's credit score before offering an interest rate. This is because your credit score and credit history plays a huge role in the percentage you receive on a home loan. If you have bad credit, you present a risk to mortgage lenders, thus your rate will be higher. On the other hand, if your credit is very good, lenders trust your ability to repay the loan.
If your purpose for refinancing your home loan is to obtain a lower interest rate, you should do everything in your power to increase your odds of getting a good rate. For starters, if you have bad credit, taking steps to improve your credit score is smart.
Creating a New Home Mortgage Loan
When you refinance your home loan, you are essentially creating a new mortgage. You are responsible for closing costs and other fees. Some bad credit applicants choose to refinance and receive cash at closing. This way, they are able to consolidate debt and pay off high interest credit cards.
While this is a wise maneuver, which may improve your credit score, refinancing may not be the best move. Instead, you should get a home equity loan and consolidate debt. After your bills are paid and your credit score increases, now is the time to refinance. By refinancing your first and second mortgage into one loan, you will get a good interest rate and become debt free in the process.
Compare Current Mortgage Loan Interest Rate
If you are looking for the lowest interest rate on your refinancing, be prepared to compare quotes from various home lenders. Each lender will offer a different finance package. Thus, submit quote requests to more than one mortgage lender. If possible, work with a mortgage loan broker. After reviewing your credit, income, and so forth, brokers will locate suitable home loans for your circumstances.
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Carrie Reeder is the owner of ABC Loan Guide .