refinance

How to get the best refinance rates

Homeowners interested in refinancing their mortgages often search for the best rates in order to maximize their savings. When comparing mortgage rates, make sure you are comparing the entire loan costs to decide which mortgage is best for you.

A mortgage calculator can help you get an estimate of your monthly payments at different loan rates, but you also need to find out if that low loan rate requires you to pay points. A point is equal to 1 percent of the loan amount.

Many borrowers opt to pay points at the closing to bring down their interest rate. For a mortgage refinance, many homeowners choose to wrap all closing costs, including any points, into their loan. While this increases the size of the loan, depending on the change in loan terms, your monthly payments are likely to be lower since you will be paying a lower interest rate.

Interest rates' impact on monthly payments

Because mortgage amounts are typically one of the largest loans most consumers must repay, even a small change in the interest rate can have a dramatic impact on the principal and interest payments.

For example, a $250,000 mortgage at 6 percent for 30 years costs $1,499 per month for principal and interest. That same loan, borrowed at 4.5 percent for 30 years, costs $1,267, for a savings of $232 per month.

Refinance rates and your credit score

Mortgage lenders today offer tiers of interest rates on mortgages, depending on the borrowers' credit scores.

For example, myFICO.com recently estimated that borrowers with a credit score of 760 to 850 could qualify for a mortgage loan at 3.831 percent on a $250,000 loan, for a monthly payment of $1,169.

Borrowers with a credit score of 620 to 639 would only qualify for a mortgage rate of 5.42 percent for a payment of $1,407 or $238 more per month.

Homeowners who want to take advantage of low refinance rates should do their best to improve their credit score before applying for a new mortgage.

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