How to land the lowest 15-year mortgage rate for your refinance

Now is a great time to reassess your home loan options. (iStock)

Good news for refinancers: mortgage rates are still at near-record lows with the average 30-year fixed loan at 3.01 percent, according to Freddie Mac data at the time of reporting. That’s a slight 0.03 percentage points increase from the record low of 2.98 percent, set a week earlier.

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Homeowners looking to cut their mortgage rate even deeper should consider getting a 15-year mortgage — the average rate was 2.54 percent the week ending July 23. To compete for business, some lenders are offering even lower rates. Wells Fargo, for example, was issuing refi rates as low as 2.75 percent on a 15-year fixed mortgage as of July 13.

You can explore your mortgage refinance options in minutes by visiting Credible to compare rates and lenders.

Take these four steps to nab the lowest rate possible on a 15-year mortgage.

1. Shop around for a great rate

The maxim “it pays to shop around” rings true as mortgage rates can vary greatly from one lender to another since every lender has its own pricing algorithm — and shaving off even just a couple basis points can save you big money over time.

Need a little help with your bargain-hunting skills? You can visit Credible today to compare refi offers from mortgage lenders.

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2. Raise your credit score

If you’ve racked up a significant sum of credit card debt over the last few months to make ends meet, you’re not alone. Consumer credit card debt has spiked for many U.S. households as a result of the coronavirus pandemic, as millions of Americans have suffered layoffs or furloughs, or have had their hours reduced. But, only borrowers with excellent credit qualify for the best mortgage rates.

Fortunately, there are a couple moves you can make to mend your credit score quickly so that you're ready to jump on today’s low 15-year mortgage rates. Credible can help ensure you find the best rates available and can give you insight into what rates you qualify for with your current credit score.

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The first is to pull your credit reports using AnnualCreditReport.com — where you can get a free copy of your report from each of the three major credit-reporting bureaus — and check them for errors. (A Federal Trade Commission study found that 5 percent of credit reports contain errors that can erroneously hurt your credit score).

Second, if you have a coronavirus-related cash crunch, contact your credit card issuer to request a forbearance, which will give you temporary relief in the form of adjustments such as waived late fees and reduced or suspended interest charges for a set period of time. (Note: Forbearance is granted on a case-by-case basis).

You don’t want to cancel any credit cards at this time. Part of your credit score depends on the ratio of credit used to total available credit; as a result, eliminating a card would raise your credit utilization ratio and potentially ding your score.

3. Increase your down payment

Beefing up how much money you put down on your new 15-year mortgage can help you qualify for a lower interest rate. If you don’t have enough equity in your home to assemble a large down payment, consider tapping some of your cash reserves to increase your deposit to 25 percent or 30 percent — it will make you a more attractive borrower to lenders.

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4. Calculate your break-even point

Don’t forget about closing costs. Between the mortgage application, appraisal, recording, and other fees, refinancing closing charges can amount to 2 to 5 percent of your loan’s principal balance.

Given these costs, it’s important to figure out when you’ll break even, and see if that time horizon aligns with how long you plan to stay in the home. According to one rule of thumb, it only makes sense to refinance if you’re going to own the house for at least another three years.

Get going

If you have a 30-year fixed mortgage, now is a great time to consider refinancing to a 15-year loan — you’ll snag a lower mortgage rate, allowing you to save a ton of money on interest, and you’ll pay off your home much faster. Just make sure you have enough cash flow to shoulder the higher mortgage payments that come with a 15-year loan.

You don’t have to go through the refinance process alone. Online marketplace Credible is a great resource when it comes to comparing multiple lenders to ensure you're getting the best rate and loan terms. Start shopping for your new 15-year mortgage today.