How low can you go?
If you are looking to refinance a home loan and hoping to get the best rates available, the best place to start may be your friendly neighborhood mortgage loan officer.
"You are going to get a lot more of the consulting type of service if you deal with someone local rather than going with a big national firm," said Grant Hickman, a senior loan adviser with Premier Mortgage Group of Boulder.
That advice may be incredibly valuable if you really are going to take advantage of the record low mortgage rates available today.
"Everyone sees these ridiculously low interest rates, and a lot of people are surprised when they actually see the rates for which they qualify," said Carrie Nash, sales manager for SWBC Mortgage in Boulder. "There are a number of reasons for that, and the No. 1 reason is you need to have an incredible credit score to qualify. You really need to be above 760 (to qualify for the best rates) and 780 is ideal."
But those big national mortgage programs often require committing funds for registration fees or an appraisal before addressing the credit score or other major hurdles to getting a super-low interest rate on a home refinance. Homeowners who have not done all their homework will find that their rates are often much higher than expected once a loan proposal is generated.
"The sad part is that a lot of homeowners won't want to move their loan out once they've committed that money," Nash said.
Even an average credit rating could move the interest rate up between a quarter and half point, and it's also one of the first places a local loan officer will start. Both Nash and Hickman said they have programs they work through with almost every client who comes in with a less-than-exemplary credit score.
"Sometimes it's something fairly simple, such as an applicant who has a lot of open credit card accounts, but they don't use them," Nash said. "Paying the balance down on some credit cards may work for some clients.
"But everyone has a individual situation and what might work for one person might not work for someone else. For instance, someone who has a limited use of credit actually might have a lower credit score than someone who has more debts."
Hickman said homeowners seeking refinancing also should be aware that some of the national programs change points on the loan, a cost of which consumers should be aware at the beginning of the process.
Another problem in today's home finance market is the appraisal, which will help determine the amount of equity in the home. While mortgage companies can no longer hand pick the appraiser for loans, they can work to make sure the pool of appraisers with whom they work is well qualified in the market.
"An appraiser coming from Pueblo is going to have a difficult time establishing a fair value for million-dollar homes in Boulder," Hickman said.
Equity is probably the second biggest factor in determining the actual loan interest, and Nash said there are some definite break-off points. "Someone who has 60 percent equity is going to pay a higher rate than someone with 80 percent equity," she said.
"Another important element is whether the refinance is just a change to the rate and term, versus a cash-out loan" in which the homeowner takes out some of the home's equity, Nash said. "The fourth major element is the type of property. Condominiums may have an interest-rate adjustment."
Hickman said a savvy consumer also will look at options other than a standard 30-year fixed rates, some of which often have even lower rates.
"We are actually seeing a lot more people who want a 15- or a 20-year fixed-rate mortgage," he said. "People want to get rid of their debt, and they don't want to start over for another 30 years."
He recalled one homeowner who was looking at a 30-year fixed mortgage. After talking to the client, however, Hickman found that the homeowner actually was seeking to sell the home in two to three years.
"How long you plan on being in the home is an important part of the process," he said. Referring to 30-year loans which have fixed rates for the first seven years, Hickman added, "If you are planning to sell in a few years, then perhaps a seven-year fixed ARM is a better way to go."