How To Lower My Interest Rate
Getting a lower interest rate is as simple as refinancing to a lower interest rate than you already have, right? Yes, however, interest rates are not one size fits all. Rather, the interest rate you qualify for depends on several factors including: your Middle FICO score, your Loan-To-Value Ratio, your mortgage payment history, whether or not you have assets, if you've ever declared Bankruptcy, the property type and your debt-to-income ratio. More importantly, it depends on what kind of loan you want. For example, you pay a premium for security. So you can expect higher interest rates for a 30 year Fixed rate than for a 5 year ARM. Most people just want to know "What is the Rate?" This is a broad question, and as you can see more information is needed to determine the interest rate for which you qualify.
A better question would be "How can I lower my payment?" It is true that your mortgage payment is a derivative of the interest rate you locked in. However, there will also be taxes and insurance and frequently Mortgage Insurance (MI), or Private Mortgage Insurance (PMI). This is different from Homeowner's insurance. Mortgage insurance is required for all Conforming loans (Fannie Mae and Freddie Mac) over 80% loan-to- value. So if your new loan is above this threshold, you will have mortgage insurance in addition to your rate. That adds to the monthly payment. There are Lender Paid Mortgage Insurance programs that will result in a lower overall monthly payment, even though the rate is higher than a loan with traditional Borrower Paid Mortgage Insurance.
Add to this the fact that you could also be eligible for an FHA Loan, which typically have slightly lower interest rates, but that require Mortgage Insurance on all loans, regardless of Loan-to-Value. So if you want to refinance, and need a mortgage at 75% Loan-to- Value, you would be better off going with a Conforming Loan that has a slightly higher rate, but no mortgage insurance, than an FHA that has a lower rate, but additional mortgage insurance.
You could also opt for a "Non-Conforming" Loan (a.k.a. a subprime loan) that forgoes mortgage insurance in lieu of a higher rate. It's best to do an analysis between conforming and non-conforming loans for your situation to see what the overall payments are. But typically sub-prime loans comes with pre-payment penalties that the conforming loans don't. And if you plan on refinancing or selling your home in the next few years, the non-conforming loans will often penalize you for up to 3% of the balance.
If you choose to pay your own taxes and insurance (waiving escrows), that will pump up your rate usually by a quarter point, but it will also decrease your closing costs and thus the loan amount. And a lower loan amount could mean a lower payment, even with a higher rate.
Lastly if you opt for an "Interest Only" loan, there is an addition to the Rate (varies from a quarter point to three quarters of a point more), but this higher rate actually nets you a lower payment than a traditional loan where you pay principle and interest.
So as you can see, the lowest rate does not always mean the lowest payment. Ask a lot of questions and make sure your mortgage consultant can explain all the nuances and provide a detailed cost analysis of all the different loan types. Refinancing your home is an important financial transaction and deserves a serious examination of all the options, not exclusive to only Interest Rate.
If you are looking to lower your interest rate, contact Envision Lending Group, or simply Apply Now online!
