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7 Ways to Get the Best Mortgage Refinance Rate

Learn more about ways you can get the best refinance rate for your mortgage loan.

With mortgage interest rates still hovering near historic lows, many homeowners are considering refinancing their mortgage to get a lower interest rate, a lower payment, or to pay their home off sooner. For many, refinancing can shave tens of thousands of dollars off the total interest paid over the life of the loan, freeing up funds for home improvement, vacations, and other splurges.

When you're refinancing an existing loan, the interest rate is one of the most important factors. Fortunately, many of the things you can do to get the best refinance rate will have the added benefit of improving your general finances and credit. Below, we'll discuss seven ways you can get the best refinance mortgage rate.

1. Check your credit report

If it's been awhile since you took a look at your annual free credit report, it's a good idea to pull copies of your Equifax, TransUnion, and Experian reports before you begin applying for a refi.

About 20 percent—or one in five—adults have at least one error on their credit report, and these errors can often drag down your score significantly until they're corrected. And because some credit report errors may appear on only one report, not all three, checking each of the major credit bureaus is the best way to ensure your credit report remains accurate.

Correcting an error can often be as simple as notifying the reporting bureau of the error in writing. In other situations, the reporting bureau may ask for more documentation—a payoff notice, receipt, or statement from a creditor that the information reflected on your report is inaccurate. Though this process can be tedious, having an inaccurate credit ding removed is one of the easiest ways to instantly improve your score.

2. Pay down high-interest debt—or increase credit limits

Your credit utilization ratio—or your current credit balances divided by your total credit limit—is one of the most important factors in setting your credit score. By reducing your credit utilization ratio to 25 percent or less, you can qualify for the best loan rates and the most favorable terms.

There are two ways to accomplish this: either pay down your total debt balance to below 25 percent of your available credit or raise your credit limit on one or more cards so that your current balance is below the 25 percent mark. Some credit card issuers can provide instant approval for a credit limit increase, and often won't require any more information than your current household income.

3. Shorten your loan term

Generally, the shorter the loan term, the lower the interest rate—even though the monthly payment may be higher. And if you're already 10 or 15 years into paying a 30-year mortgage when you refinance, it may make sense to roll your remaining loan balance into a shorter term to reduce interest and stick to close to the original repayment timeline.

On the other hand, the difference between interest rates on a 15- or 30-year mortgage is often less than one percentage point. So, if moving to a shorter mortgage would strain your budget, it may make sense to opt for the longer loan and simply use any excess funds to pay the loan down sooner.

4. Put more money down (or check your equity)

Just like shorter loan terms tend to feature lower interest rates, having at least 20 percent down (or 25 percent for non-owner-occupied homes) can help you avoid private mortgage insurance (PMI), a monthly payment that protects the lender's interest in the asset.

If you put less than 20 percent down when you first purchased your home but now have 20 percent or more in home equity, refinancing can reduce your monthly payment by eliminating PMI—even if your interest rate and loan term stay the same.

With home prices across the country rising rapidly due to the increase in lumber prices and shortage of available housing, many homeowners have quietly crossed the 20 percent threshold over the last year.

5. Take advantage of first-time home buyer programs

For qualifying borrowers, there are quite a few first-time home buyer programs and specialized loans that can offer lower interest rates than conventional loans. And while it may seem counterintuitive to use a home buyer loan to refinance a loan on a house you already own, there are several situations in which these loan programs can come in handy.

For example, if you purchased your home before marriage and your spouse isn't on the loan, refinancing to include your spouse as a co-borrower can qualify you for a first-time home buyer loan if your spouse has never owned a home before. Investigating all your loan options can ensure that you have access to top-tier rates.

6. Evaluate your future in your home

Refinances don't only benefit those who are locking in 15- or 30-year conventional mortgages.

Other loans, like adjustable-rate mortgages (ARMs), often have low "teaser" rates for the first few years, then reset into an adjustable interest rate based on the prevailing rates at that time.

For example, a 5/1 ARM will reset to the prime rate after five years and once per year after that; a 7/2 ARM offers a fixed rate for seven years and then resets once every two years after that.

If you're planning to sell your house within the next couple of years, an ARM can be your most inexpensive mortgage option—you'll be able to take advantage of the low fixed rate while selling the home and paying off the mortgage before the rate resets.

7. Shop around for refinance mortgage rates

Mortgage lending is a competitive business, and lenders are constantly vying to beat the terms and rates offered by their competition. Taking the first refinance mortgage rate you're quoted (or sticking with your original lender) may mean you're not getting the best possible deal.

As long as two years ago, getting more than one quote could save an average of $1,500, while getting five or more quotes can save an average of $3,000 over the life of a loan. And if these quotes are all obtained within a few months, they'll usually count for only one "hard" inquiry on your credit report. This means you won't be penalized for getting as many quotes as possible.

If you're interested in refinancing your mortgage, look no further than Listerhill Credit Union. We've helped thousands of borrowers find the right loan and monthly payment, and we can help you, too.

Click below to get started today!

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  • The Great Giveback Official Rules

    1. Eligibility: No purchase or obligation necessary to participate and win. All participants must be 19 years of age or older at time of contest participation. Employees of Listerhill Credit Union are not eligible to register for the contest.

    2. How To Enter the Contest: All Listerhill members who have consumer loans in good standing, (subject to limitations below) are automatically entered. Anyone who takes out a new loan with Listerhill Credit Union, or refinances a loan from another lender with Listerhill Credit Union (subject to limitations below) will automatically be entered to win. Limit of one entry per loan.

    NO PURCHASE NECESSARY: To enter the contest without a loan, send a self-addressed, stamped envelope to: Listerhill Credit Union, P.O. Box 566, Sheffield, AL 35660, Attn: Great Giveback Contest Entry. Limit one entry per person. Written entries must be received no later than July 3, 2021.

    Listerhill Credit Union will not be responsible for incomplete, lost, late, misdirected or illegible entries or for failure to receive entries. All entries become property of Listerhill Credit Union and none will be returned. Any questions regarding the number of entries submitted shall be determined by Listerhill Credit Union in its sole discretion, and Listerhill Credit Union reserves the right to disqualify any entries by persons determined to be tampering with, violating, or abusing any aspect of the contest.

    3. Contest Entry Requirements: In the event the Credit Union, in its sole discretion, determines that any Entry contains content that does not comply with these Official Rules or does not otherwise comply with regulatory guidelines, Credit Union reserves the right to disqualify the entry.

    4. Determining the Winner: A Credit Union employee will select at random four (4) $500 winners (one per day July 12-15) and one Grand Prize Winner from all entries received on July 16, 2021. You do not have to be present to win.

    5. Prizes: $500 Cash Prize: the Credit Union will award four (4) members with $500 cash each. Grand Prize: The Credit Union will pay up to $25,000 toward your loan with Listerhill Credit Union, or combination of loans. No loan payments will be made to loans with any other lender. No cash equivalent provided, and the total prize amount may be less depending on the outstanding amount of loan balance(s) with Listerhill Credit Union. In no event will the prize awarded exceed the total amount of the winner’s outstanding balance of qualifying loans with Listerhill Credit Union. Federal, state and local taxes are the sole responsibility of the winner. IRS regulations require the Credit Union file a 1099 on behalf of the winner.

    A Credit Union employee will call the prize winners and the prize winners will be called up to five times during regular business hours at number provided on entry form and will leave no messages. Failure to reach winner during these calls may result in disqualification of winner, forfeiture of his or her interest in all prizes, and selection of a substitute winner drawn from the drum. Winner will be required to schedule a time, at least 48 hours in advance, to visit Listerhill Credit Union, located at 4790 2nd Street, Muscle Shoals AL, 35661 in person, during regular business hours within seven (7) days of being notified to claim prizes by providing proof of eligibility for prize won and completing and signing an affidavit of eligibility and a liability and publicity release. Failure of any Winner to timely contact the Credit Union, visit the above Credit Union office in person and sign and return any required affidavit and release, or to claim a prize or comply with any term or condition of these Official Rules, will result in drawing Winner's disqualification and the forfeiture of his or her interest in the prize. Winners may waive their right to receive prizes. Prizes are non-assignable and nontransferable. No substitutions allowed by winner.

    6. To be eligible to win, all loans must be in good standing (not more than 30 days past due at the time of drawing. Eligible loans are limited to auto loans (no indirect dealer loans), personal loans (no loans secured by real property, such as mortgages, 2nd mortgages, and Home Equity Lines of Credit) and recreation loans made to consumer borrowers (not business or commercial loans).

    6. Participation. By participating, entrants agree to be bound by these Official Rules and the decisions of the Contest. Except where prohibited, acceptance of any prize constitutes winner's consent to the publication of his or her name, biographical information and likeness in any media for any commercial or promotional purpose, without limitation the Internet, or further compensation. Prizes not won and claimed by eligible winners in accordance with these Official Rules will not be awarded and will remain the property of the Credit Union.