First Step to Refinancing

The Money Minute is brought to you by Mary Hurlburt, the Director of Community Outreach.

February 19, 2008

First Step to Refinancing

My husband and I downsized last year. We have excellent credit, but local lenders still couldn’t match the rate the builder offered so we now have a mortgage with an out-of-state bank. I don’t like it. Six months ago when I had a question about our account, contacting our lender was a nightmare. My peace of mind requires that I be able to walk into a brick and mortar building and speak to a human being. So, we’re again in the market for a mortgage.

The two biggest reasons to refinance your mortgage are to lower your interest rate and to get out of an adjustable rate mortgage. For many homeowners, now is the time. The Federal Reserve has lowered the prime rate, but it may soon be on the rise again. The trickle-down effect for mortgages is only going to help those whose credit reports indicate they will be a good credit risk. Therefore, if you’re planning to refinance, make sure your credit is as good as it can be before you apply.

Follow these strategies to ensure you receive the best mortgage rate possible:

• Order a credit report from each of the three credit bureaus: Equifax, Trans Union and Experian. Correct any inaccuracies you find. If your score is in the mid 700’s or better, you should be offered the best interest rates.  
• Make sure you pay every bill on time. Your payment history is one of the biggest factors in your credit report and score.
• Catch up on any missed payments.
• Keep the balances low on credit cards. If your limit is $5000, don’t charge more than $2500. If you’re already over that 50% figure, start paying them down. Transferring balances doesn’t help.  You’ll still owe the same amount of money.
• Don’t open new lines of credit. Sometimes that lowers a score.
• Closing accounts you no longer use may be a good move for other reasons, but it isn’t a strategy for improving credit. It may actually backfire and lower your score.

Get information about mortgages from the Federal Trade Commission.  

Now you’re prepared. Happy mortgage shopping!

The Money Minute is brought to you by Mary Hurlburt, the Director of Community Outreach at the Consumer Credit Counseling Service. Do you have a question for Mary? Email her at mhurlburt@cccservices.com.