The Refinance Expert

Tips for Getting the Best Interest Rate for Home Mortgage and Refinance Loans

November 7th, 2008

Online mortgage loans are both quick and convenient. The application can be completed in the privacy of your home, and it typically takes less time to get a reply from the lender. Shopping for a purchase loan, cash-out refinance or home equity loan involves more than just looking at loan amounts and advertised interest rates. Follow these tips, and save money:

1. Clean up your credit. Uncorrected errors on your credit reports will lower your FICO scores. According to myfico.com, your three FICO scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you. Example: a person with FICO scores of 760 or better will pay $231 less per month for a $216,000 30-year, fixed-rate mortgage than a person with FICO scores below 620.

2. Shorter term loans can you save money in the long run, but the monthly payments are higher. However, you could get also get a 30-year loan and pay a little extra towards your principal each month.

3. Shop for the lowest annual percentage rate (APR) and closing costs. The APR is the yearly cost of a mortgage, including interest, mortgage insurance (if LTV is less than 80%), and origination fee (points), expressed as a percentage. Closing costs include the appraisal, recording fees, attorney or notary fees, etc.

4 Fixed-rate mortgages are mortgages where the interest rate stays the same for the duration of the loans. ARMs are mortgages where interest rates change after a term (usually of 3 or 5 years). ARM rates are based on one of several prime rate indices including, LIBOR, MTA and COFI. An ARM could save you money if you plan on selling the house or refinancing soon.

5. Make sure your loan doesn’t carry a pre-payment penalty, or it will cost quite a bit extra to refinance later on.

6 Look at loan features as well as rates. Example: option ARMs offer flexible repayment terms that allow you to pay a minimum payment, interest only, principal and interest and even pay the loan off early. These and interest-only loans are best for people who are more interested in cash flow than equity.

7. If you plan on keeping your house for more than three years, you could pay points for a lower rate. Remember to compare your interest savings versus the points before signing.

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