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Wheeling and Dealing for Better Refinance Rates

By sbup Staff

Refinancing a mortgage generally makes sense only if it saves you money. Whether you're jumping from an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM), or replacing one FRM with another, getting the lowest rate possible is the key to saving as much as possible. Finding the lowest rate requires a little shopping around, and a little negotiating as well.

Interest rates vary from region to region and lender to lender. You can start your search by entering your ZIP code at’s mortgage section. There you'll find hundreds of rate offers on a variety of mortgage products. Choose from among the best rate offers, and contact each lender to get estimates of its closing costs and the rate for which you'd qualify. (For more on lowering closing costs, read this article.)

Compare offers from at least three lenders. Pay close attention to the various fees and other costs associated with the loan, and don't be afraid to negotiate with the loan officer to reduce or even waive fees. Try pitting lenders’ offers against each other, much as you might ask one car dealer to beat another’s price on a new car. Asking if a lender can beat a competitor’s lower origination fee is a good place to start.

The key to successful negotiation is information -- and that applies to interest rates just as much as it does to closing costs. The interest rate you qualify for depends on a number of factors, and chief among them is your credit score. If your score is higher than 740, you can expect to qualify for the best rates possible. If your score is 720 or below, you can still push for a better rate by explaining why your score isn't higher -- for instance, you only use one credit card because you're a responsible spender, or you don't have any installment loans because you believe in saving instead of borrowing.

Another potential way to lower your rate when you have only average credit is to pay down some of your mortgage balance. This move will improve the loan-to-value ratio (LTV) on your new mortgage. With falling home values, lenders these days are petrified of upside-down mortgages (a situation where a borrower owes more than a home is worth). Lenders offer the best rates on mortgages with an LTV of 80% or less, so if you are close to that ratio, consider paying down your balance before refinancing.

If an interest rate makes sense, don’t be afraid to lock it in. Short-term trends in mortgage rates are very difficult to predict; if a rise in rates would mean you wouldn’t save money by refinancing, there's no sense in gambling on the chance that rates might drop lower in the future. To help figure out whether refinancing makes sense at the rate you qualify for, take a look at's Refinance Break even calculator. (For tips on using the calculator, read here.)


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