Finding the Lowest Refinance Rates Online

I like to refer to the days before the Internet as the “old days.” Because when it comes to getting refinance quotes and shopping for rates, the Internet has changed everything. In the past, a person shopping for the lowest refinance rates would have to make a dozen phone calls to speak with several different brokers or lenders. Not anymore!

Using the Internet to shop for rates on a mortgage refinance loan is certainly convenient. Nobody can argue with that. In most cases, you simply fill out a web-based form with information about yourself, and you get rate quotes sent to you by email. What could be easier? But it’s more than just convenient — it’s smart.

Besides just saving you time, the Internet can also help you find the lowest refinance rates by giving you a much broader reach. The days of being limited by phone calls and driving distance are over. These days, there are mortgage “portal” websites online that give you access an unlimited pool of potential lenders. So when you make a loan request online, you’ll typically have a better change of getting the lowest rates and saving money.

Rates Are Everything When Refinancing

Some homeowners believe that it’s always a good idea to refinance a mortgage. But this is simply wrong. In some cases, refinancing doesn’t make sense because you end up paying more than you save. In other words, if you spend more money in closing costs than you save by getting a lower rate, a refi doesn’t make sense. (Check out this article about the average cost of refinancing for more on this.)

Of course, the reverse is true. If you lower your interest rate after refinancing, and you save more in the long run than you pay in closing costs, then it’s probably a good idea to refinance your home. After all, that’s the whole point of this process — to save money.

That’s why the rate is so important. It helps you calculate the “break-even point” (or BEP). This is the point where it makes sense to do a refi, and it underscores the importance of getting the lowest refinance rates possible. Shopping around and comparing offers is the key to this process, and that’s why I encourage you to use the Internet.

Qualifying for the Lowest Rates – What It Takes

A common misconception among homeowners is that you’ll automatically qualify for the best interest rates when refinancing. I’m not sure where this notion comes from really, but it’s just not true. When you refinance your home, you are essentially replacing one mortgage loan with another. Ideally, your new loan will have better terms and a lower rate — that’s the whole point, after all.

But you won’t automatically get the lowest rates when you refinance the mortgage. You’ll go through the same qualification process you went through when you first bought the home. The lender will review your debt-to-income ratio, your credit score and other factors. Every lender is different, so it’s impossible to say what criteria are needed to qualify for the best rates. But generally speaking, you’ll probably need the following things to get the lowest interest rates:

• A credit score of 750 or higher (some people say 720, while others say 760)
• Sufficient equity in your home, upward of 20%
• A favorable debt-to-income ratio, as defined by the lender

The second item above (equity) is the biggest problem for homeowners these days. As a result of the housing and mortgage crisis, home values have dropped across the nation. In some cities, they have dropped significantly. As a result, people have lost equity and many homeowners are upside down in their mortgages. That’s the biggest challenge to getting the lowest refinance rates in the current economy — not enough equity.

But there is one bit of good news to offset the equity problems mentioned above. Because of the Fed’s attempts to stimulate the economy, we are seeing lower mortgage rates today than we’ve seen in decades. In fact, at the time this article was published, the Freddie Mac weekly summary showed 30-year fixed mortgages with rates as low as 4.98% — which is the lowest they’ve been in a long time.

The Bottom Line for Borrowers

Here’s what it all boils down to. If you meet the three general criteria listed above (equity, credit score, and debt-to-income ratio), it might be a great time to refinance your home. The first thing you should do is use a refinancing calculator to see how much money you might save.

If the numbers work out for you, and it looks as if you’ll save some money, then you should use the Internet to get refinance rate quotes from lenders. You have nothing to lose, and you stand to gain a lot. Good luck!