The ongoing coronavirus pandemic has taken a toll on the average American’s personal finances. And it’s had a considerable effect on the mortgage industry and led to record-low refi rates.
Now is the ideal time for borrowers to consider refinancing their mortgage to a 15-year term. There are many reasons to refinance mortgages, from lower monthly payments to paying off your mortgage quicker. By refinancing into a shorter loan term, you’ll take advantage of record-low rates and save money over the life of the loan.
To see today's featured mortgage refinance rates, head to Credible. You can compare rates for 15-year fixed terms and 30-year fixed terms and compare options. Typically, 15-year mortgages have lower interest rates so you may want to opt for a shorter term — particularly when refinance rates are hitting record lows.
How to get the best 15-year mortgage refinance rates
Here are the steps you can take to receive the lowest 15-year mortgage refinance rate possible:
- Improve your credit score
- Lower your debt-to-income ratio
- Compare rates among lenders
- Consider changing your loan terms
- Be ready to lock in a new rate
1. Improve your credit score
You’ll need a high credit score to qualify for the best refinance rates. An excellent credit score shows mortgage refinance servicers that you have a history of meeting your financial obligations and are less of a risk.
Most banks use the FICO scoring model to evaluate a borrower’s credit. Every lender has its own standard for borrowers but a 740 or higher is usually considered an excellent credit score and will help you qualify for the best interest rates. Paying all your monthly bills on time is one of the best ways to raise your credit score. And you should keep all credit card balances at less than 30% of the limit.
By filling out a short form, you can view Credible’s list of loan options across multiple banks and lenders without impacting your credit score.
2. Lower your debt-to-income ratio
In order to find your debt-to-income ratio, divide your monthly debt payments by your monthly income. Lenders use this ratio to decide whether to approve your refinance application.
A debt-to-income ratio of 43% is the highest that most mortgage lenders will accept. But the lower your debt-to-income ratio is, the more likely you are to qualify for low mortgage refinance rates. Before applying to refinance, try to pay down your credit cards and reduce your debt as much as possible.
If your debt-to-income ratio is already low, then you may already qualify for low rates. Head to Credible to crunch the numbers.
3. Compare rates among lenders
The main goal of a mortgage refi is to lower your interest rate and save on your mortgage. The best way to do this is by comparing rates across multiple lenders. The CFPB estimates that borrowers who compared lenders save an average of $300 per year and thousands of dollars over the life of the loan.
When you apply for a mortgage refinance, you’ll receive a loan estimate from each lender. Consider the terms, interest rates, closing costs and fees outlined in your loan estimate. Make sure to receive quotes from at least three to four different lenders.
Receiving a loan estimate won’t hurt your credit as long as you complete all of them within a 45-day window. You can use Credible to compare rates, loan options and lenders.
4. Consider changing your loan terms
If you currently have a 30-year mortgage, consider changing your terms and refinancing to a 15-year mortgage. A shorter loan will help you qualify for a lower rate and it’ll save you money in interest payments over the life of the loan.
If you can afford to pay slightly higher monthly payments, then consider switching to a 15-year mortgage to save more money over the life of your loan. Credible can show you recent trends with 15-year fixed rates and help you get prequalified rates within minutes after filling out some simple information. See if a shorter loan will improve your overall personal finance.
5. Be ready to lock in the new rate
Once you’ve found a lender that will offer you low interest rates, be ready to lock in the new rate as quickly as possible. It can be tempting to wait and see if rates will drop even lower but that's a risky move.
Mortgage refi rates could suddenly go up due to unexpected economic changes or market news. Once you’ve received your loan estimate and talked to your lender about a potential closing date, you’ll want to request a mortgage rate lock.
That way, if mortgage rates suddenly go up, it won’t affect your mortgage while the loan is being processed.
Get your refinancing questions answered
With mortgage refinance rates at an all-time low, there’s never been a better time for homebuyers to refinance. And these record interest rates won’t last forever.
But like any other financial transaction, refinancing is complex and will require your due diligence and follow-through. That’s why all mortgage borrowers can benefit from working with a qualified professional.
If you’re not sure where to start, Credible can connect you with experienced loan officers. That way, you can get your mortgage questions answered.
If you're still unsure if switching to a 15-year loan term is the right move for you, consider reaching out to a financial adviser.