Why refinance?

There are several reasons why homeowners decide to refinance. Some want to take advantage of low home refinance rates, while others are looking to change their payment terms or access cash quickly.

Take advantage of lower rates

If rates have dropped since you took out your mortgage, a lower rate refinance is a smart move. It’s always a good idea to reduce the interest you’re paying, especially on big ticket items like your home.  

However, in some instances, it actually makes sense to take a higher rate on your home if you have a lot of bad debt like credit cards and/or personal loans. Focusing on the whole financial “pie” instead of just one slice.

The savings can be significant. When home refinance rates dropped in 2019, CNBC estimated the average savings per borrower at $271 per month—putting a total of $1.6 billion in monthly savings on the table for American homeowners.

A lower rate refinance doesn’t just lower your monthly payment and overall interest cost; it can also help you build equity in your home faster.

Extend your term to reduce payments

Even if interest rates haven’t dropped much, refinancing can lower your payments by spreading what you still owe over a longer term, especially if you’ve already built up equity. If a change in income or family size has left you concerned about meeting your payments, weigh the cost of a refinance against the peace of mind of having lower monthly bills.

Change terms

Another common reason to refinance is to switch from an adjustable-rate to a fixed rate, or vice versa. If you’ve been watching rates fluctuate since you bought your house, and found yourself wishing you’d made a different choice, a refinance can be the reset button you’re looking for.

Access low-interest cash

Equity in your home looks great on a balance sheet—but you can’t use it to make investments or pay down debt.

The extra cash you can pull out of your home by refinancing could improve your cash flow, pay off higher-interest debts, leverage investments, or upgrade your lifestyle.

Compare home refinance rates to what you’re being charged for your credit card, car loan, or personal debt. Shifting high-interest debt into a low-interest mortgage makes good financial sense.

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When home refinance rates dropped in 2019, CNBC estimated the average savings per borrower at $271 per month.

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How to find (and earn) those unbeatable rates

You may be tempted to refinance with the same bank because it’s familiar and seems easiest. But your bank is going to ask you to jump through all the same hoops as a new lender, so you might as well shop around for the lowest rate. There are some other steps you can take that will lower your rate, too.

Check your credit report for errors

A good credit score is critical to qualify for the lowest home refinance rates. If you want a head start, request a free copy of your report and look over it carefully. If you spot any errors, report them right away. Or, if you prefer, your loan advisor will pull your credit report and review it with you.

Polish your FICO score

The report you receive won’t have a score attached to it, so use an online service to view your score and get recommendations to clean it up.

Sometimes a simple step can raise your score significantly. For example, requesting a higher limit from your cards will instantly reduce the percent of available credit that you’re using.

Lower your debt-to-income ratio

Your debt-to-income ratio is your monthly debt payments expressed as a percent of your income. Borrowers with a small debt load are considered lower-risk and are usually offered better rates.

If your debt-to-income ratio is high, consider using savings to pay down some of your debt. If you have a loan or credit card with a high monthly payment, you might want to negotiate with your creditor for a lower payment before you apply for your mortgage.  

Compare APR, not rate

Borrowers often compare interest rates without factoring in fees, discount points, and other expenses built into the loan. Loans can have a lot of moving parts that impact your overall cost.

Luckily, there’s a way to compare the total expense of one loan to another—the annual percentage rate (APR.) The APR tells you the true cost of a mortgage. The APR figure includes the interest rate plus any points and fees charged by the lender.

Since your refinance rate will be based on your individual FICO score and circumstances, you won’t know your actual APR until you’ve filled out an application. Still, the published APR rate is the best tool for comparing lenders.

Visit Lower.com

Lower rates are the reason for our name. Visit Lower.com to check out our daily rate, and how it compares to other major lenders as well as the Bankrate national average.

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The refinance process

Wondering what to expect? Here's a step-by-step breakdown.

Gather your documents

The paperwork you’ll need is very similar to your original mortgage application

• Recent pay stubs
• Your last two W-2s
• Your last two tax returns
• Recent bank statements (60 days)
• Current mortgage statement
• Homeowners insurance policy
• Proof of any alimony or child support payments

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Apply for the loan

With your documents in hand, getting pre-qualified should be a breeze. Here at Lower, we actually don’t require you to fill out an application—we’ll ask you a few basic questions over the phone.  

Get an appraisal

You need another appraisal when you refinance, because the value of real estate is constantly changing. Just like with your first mortgage, you can expect to pay for the appraisal, which should cost around $300-400.

There shouldn’t be any major surprises at this stage. You probably have a sense of whether local property values have gone up or down since your last appraisal, and you’re well-acquainted with any changes in your own home as well. If the appraiser values your house at an amount other than your estimate, your loan amount will be adjusted accordingly.

Underwriting

Now the underwriter takes over. Their job is to verify your application and check your documentation. Be very cautious at this stage not to make any big changes in your financial life, like applying for a credit card or buying a big-ticket item.

If the underwriter has questions, someone from your loan team will contact you. Otherwise, you’ll receive an approval letter with your final terms and conditions spelled out in detail.

Lock in your rate

At this point, you’ll have the option of locking in your rate (although this can also happen earlier). The rate lock guarantees the rate in your approval letter for a specific period—usually two to six weeks, and it can be extended, too. Choosing a longer lock period increases your costs, so it’s best to lock in your rate within a week of your closing date.

Close the loan

Once you’ve locked in the rate, you’ll receive an updated loan estimate. Look over this document and make sure the final costs and loan amount are in line with what you expected. Then you’ll select a date for your closing. Another set of disclosures, called closing disclosures will be sent out at least three days prior to closing.

At the closing, you’ll sign all the documents. You’ll want to bring a valid state ID, and a check to cover the closing costs, if you have any.

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Since you've already closed on a mortgage at least once, the refinance process should feel familiar.

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A final word

Refinancing your home can make a big difference in your quality of life by lowering your house payments and letting you tap into your home equity to pay off debt.

To get the lowest home refinance rates possible, make sure your FICO score is as high as possible, reduce your debt-to-income ratio, and check us out at Lower.com to take advantage of the lowest rates available.

And if you want lower rates, we're Lower. Just get in touch.

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