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How to land an ultra-low 30-year mortgage rate for your refinance

MoneyWise logoMoneyWise 10/18/2020 Doug Whiteman
a fire hydrant in front of a house: How to get an ultra-low 30-year refinance rate © @zekkino / Twenty20 How to get an ultra-low 30-year refinance rate

Refinancing your home to take advantage of today's lowest-ever mortgage rates has been one of 2020's hottest crazes, right up there with baking your own bread, wearing joggers and making TikTok videos.

Homeowners this year have been refinancing at more than double the rate seen in 2019, according to research from Attom Data Solutions.

Plunging mortgage rates have given homeowners a major incentive to refinance and save. An estimated 19 million Americans could refi and lower their interest rates enough to slash their monthly payments by an average $299, says mortgage data firm Black Knight.

Rates have just dropped to their 10th record low this year, in the long-running weekly survey from mortgage giant Freddie Mac. Some lenders are advertising 30-year rates at 2.5% and even lower.

But borrowers need to hurry to beat a new refinance fee taking effect later this fall. Here are four tips on how to get the very best deal when refinancing into a fresh 30-year mortgage.

1. Get several mortgage offers and compare rates

Sarah Hiraki sitting at a table using a laptop: Rido / Shutterstock Cast a wide net to find a good rate. © Provided by MoneyWise Rido / Shutterstock Cast a wide net to find a good rate.

Refinancing into another 30-year loan is a good 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 and opt for a new 30-year fixed-rate mortgage.

Average rates have slid to an all-time-low 2.81%, Freddie Mac reported on Thursday. Rates have fallen so far that you're an excellent refi candidate if you have a mortgage you took out as recently as the beginning of 2020, when the average was around 3.75%.

But borrowers can't assume they'll always be be presented with the lowest rates possible. Different lenders can offer the same homeowner vastly different refinance rates, especially since some are already factoring in a 0.5% fee on refi loans that officially starts Dec. 1.

To find your best refinance deal, you've got to shop around and compare rates — not stop your search at the very first loan you're offered.

Hunting for a rock-bottom rate is worth it. 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 hearing from just one lender.

2. Polish up your credit score


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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 take a peek at it for free.

If you find your credit score needs some help, take steps to raise it:

  • Pay down 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.
  • 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.
  • Get your hands on your credit reports and make sure there are no errors that could be 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.

3. Show a lender you're more invested in your home

Maryna Pleshkun / Shutterstock A bigger down payment can get you a lower rate. © Provided by MoneyWise Maryna Pleshkun / Shutterstock A bigger down payment can get you a lower rate.

Refinancing homeowners who have healthy amounts of equity in their homes tend to score the lowest 30-year refinance rates.

Equity is the percentage of your home's value that you own. To determine your equity, take the amount you've already paid on your home and divide that by what the house is currently worth. That figure — which should be to the right of a decimal point — represents your equity percentage.

To a lender, the ideal refi candidate has at least 20% equity, Black Knight says. If you still have a ways to go to reach the 20% level, you'll want to make a down payment that will put you over the line.

As an added bonus, you won't be forced to buy or keep paying for private mortgage insurance, if you've got at least 20% equity in your home.

Private mortgage insurance offers a lender protection in case a borrower defaults. It's not to be confused with homeowners insurance — which offers you protection if your house is damaged by fires, tornadoes and most other types of disasters.

You should already have home insurance — it's vital, and most lenders require it. But each time your homeowners policy comes up for renewal, go online and get a bunch of rate quotes so you can feel confident you're not overpaying for your coverage.

4. Be willing to pay 'points'

The optional fees known as "discount points" are a type of upfront payment that can help you bag a low 30-year mortgage rate. One point equals 1% of your loan amount and can lower your rate by as much as one-quarter of 1 percentage point, say from 3.2% down to 2.95%.

Jaw-dropping mortgage rates often — though not always — come with points.

"By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time," says the U.S. Consumer Financial Protection Bureau. "Points can be a good choice for someone who knows they will keep the loan for a long time."

You'll need time to break even on the points and other closing costs before you can truly start enjoying the savings from your low mortgage rate.

The CFPB says lenders have their own individual pricing structures, so don't make the assumption that a loan with points will always have the lowest rate out there. You might find another lender offers a loan with zero points and a better rate.

It's another good reason to gather multiple loan offers and review them side by side — to make certain you get the cheapest mortgage available to you.

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