Be realistic when refinancing home loan

Refinancing home mortgages has been all the rage in recent years as mortgage rates have fallen to near historic lows. Rates have crept higher in recent months, but still remain attractive to homeowners looking for a new mortgage.

Homeowners planning to refinance home loans need to be realistic about getting the best mortgage rates. If you have great credit and plenty of equity, odds are good that the lowest rates are within your reach. But if your personal finances are less solid, you may have to overcome some obstacles before getting a new home loan.

How can you get the best rate when refinancing your home loan? These tips will help.

• Improve your credit score. It only makes sense that the higher your credit score, the better your mortgage rate. A solid credit history shows the lender that you can be trusted to pay them back on time, as agreed. Take steps to boost your credit score, such as paying down debt and making all payments on time, before refinancing to qualify for a better rate.
• Pay more points. Paying points allows you to buy down your loan's interest. One point equals 1 percent of your loan amount. Buyers who opt to pay more points when refinancing home mortgages generally will be offered lower interest rates on their loan.
• Choose a shorter term. Shorter-term loans are less risky for your lender, so you may be able to snag a lower interest rate by opting for a 15-year mortgage instead of a 30-year one.
• Don't go "jumbo." Loans for large sums of money, called jumbo loans, often come with higher interest rates because it's harder for your lender to sell them to investors. To qualify for a better interest rate, stick with a conforming loan.
• Lock in your rate. If you are offered a fantastic rate on your refi, discuss locking it in with your lender. Once a rate has been locked, it cannot increase.

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