Refinancing your home to land one of today's lowest-ever mortgage rates has been one of the hottest homeowner trends of the pandemic. Lenders have been swamped by refi applications since last March, when the Federal Reserve cut interest rates to the bone as COVID-19 first started its rampage in the U.S.
With mortgage rates dropping from one all-time low to another, homeowners have had a major incentive to refinance and score savings.
But getting a great rate isn't guaranteed — you can find wide differences from one lender to another. These five tips will help you feel confident you're getting your best deal when refinancing into a fresh 30-year mortgage.
1. Gather mortgage offers and compare rates
Cast a wide net to find a good rate.
Refinancing into another 30-year loan can be the right choice if your current mortgage is relatively young. You won't be stretching out your interest costs all that much if you've been in the home just a year or two.
Rates on 30-year fixed-rate mortgages are currently averaging just 2.77%, according to the long-running weekly survey from mortgage giant Freddie Mac. You could be an excellent refi candidate if you have a mortgage you took out last year at this time, when the average was a loftier 3.60%.
To find your best refinance deal, you've got to shop around and compare rates from several lenders. A Freddie Mac study found if you get five rate quotes, you'll pay lifetime costs averaging $3,000 less than if you stop your search after only one loan offer.
An estimated 19.4 million Americans could refi and drop their interest rates enough to slash their monthly payments by an average $308 each, according to research from the mortgage technology and data provider Black Knight.
2. Polish up your credit score
A better credit score brings better mortgage rates. Lenders like borrowers whose credit scores are very good (in the 740-to-799 range) if not exceptional (800 to 850).
To get the kind of refinance loan that will save you hundreds of dollars a month, you'll need a score of at least 720, Black Knight says.
Don't know your credit score? It's easy enough to get a peek at it for free.
If you find your credit score needs some help, take steps to raise it:
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Pay down your other debt, especially on credit cards. A debt consolidation loan might help you get rid of credit card debt more quickly, and at much lower interest.
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Don't open new credit cards, but don't close old ones either. If you do that, you'll reduce your available credit — which could hurt your score.
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Get your hands on your credit reports and make sure there are no errors dragging down your credit score. A 2012 study from the Federal Trade Commission found 20% of U.S. consumers had potentially costly mistakes on their credit reports.