Interest rates are low. Most of the time it’s wise to ignore anyone who tells you “you really need to….”, but believe me, you should check the interest rates of all your debt before interest rates rise.
…and when are interest rates going to rise? That’s the problem; I don’t know. Therefore, I recommend you do it right now.
Before We Begin
Make sure you read my post from two weeks ago: How to Take Advantage of Low Interest Rates. It lays out the simple steps to check your credit. You don’t want any surprises if you end up filling out applications to lower your interest rate.
Today, we’ll focus on three areas: your home, auto and credit cards.
How to Refinance Your Home
1) Compare rates through several lenders. This is done easily through a mortgage broker or an online comparison site. While many lenders appear to have different rates, you’ll find those with lower rates generally have higher fees. On the inverse, those with higher rates often have lower refinance costs. Generally, I prefer lower cost mortgages (which often means a slightly higher rate).
2) Gather information about each type of mortgage. Home lenders offer two basic types of mortgages: fixed or adjustable. While there are many iterations of each type, here are some you’ll see regularly during your search:
a) A basic fixed rate mortgage comes in a 15-year and 30-year variety. Usually, a 15-year mortgage will have a slightly lower interest rate than a 30-year option.
b) Adjustable rate mortgages often keep the rate stable for 1, 3, 5, or 7 years, before changing. Usually the rate will change annually after the short fixed period.
3) Decide which option is best for you. When rates are low, it’s usually a good idea to lock in a 15 or 30 year fixed mortgage. While the rate offered may be slightly higher than an adjustable mortgage, you won’t have to worry about the interest rate changing (and also your payment amount) during the life of the loan. This will give you the peace of mind to work on your craft instead of wondering what your mortgage payment is going to be next year.
4) Ask for the fees in writing. Compare not only interest rates but loan fees, also. Often, the lowest interest rate will be coupled with the highest fee schedule.
5) Fill out the application. A banker friend of mine recently told me that because of the many foreclosures, banks are asking for lots and lots of paperwork. Be prepared with everything the lender asks for, and be patient when they ask to verify much of the paperwork you present.
6) Ask for the loan agreement a day before you must sign it. This allows you to either read the paperwork yourself to verify that it matches what you were promised or have a knowledgeable friend help you. Don’t skip this step! Sadly, I’ve seen too many times paperwork that isn’t what it was promised to be during the process.
7) Sign the Forms. Finally, an easy step!
8 ) Be prepared to make your first payment. Normally, you skip a payment when refinancing. Use this money to build your cash reserve or pay down other debt.
How to refinance an Auto Loan
Luckily, this is easier than refinancing a home. In fact, there are only two steps:
1) Ask your bank if they offer car loans. Find out the interest rate they’d offer to refinance your car. Drive to a few other banks and get quotes.
2) FIll out an application with the company offering the lowest rate. Generally, auto loans have little or no extra fee attached.
3) Keep the term on your auto loan the same as it was earlier (or shorten it). I’ve seen many people get into trouble with car loans that are still around while the car is long, long gone.
How to Refinance Credit Card Debt
Once again, this is an easy, straightforward process.
1) Call your credit card company and ask for a lower rate. If they tell you that they can’t, find out what circumstances would have to happen for the rate to be lowered. (Mine recently told me that I had only one more month to go and they’d automatically lower my rate).
2) Know all of those credit card offers that come in the mail? You know, the ones that you usually throw away? Look through them for lower rates. You may be able to transfer your balance to a new card with a subtsantially lower rate. You aren’t looking for a teaser rate – zero percent for 12 months or some other offer – you want a low, fixed rate card.
3) ALTERNATELY: Ask your bank or credit union what the rate is on a consolidation loan. If you’re trying to cut up your credit cards, this may be an excellent opportunity to roll the rate into a bank loan. Just make sure you actually cut up the cards when you make this move.
Have you had success refinancing debt recently? Share your story in the comment section at the end of this blog post.