Looking to Bolster Your Cashflow With a Home Mortgage Refinance? Consider These Tips
There is no such thing as free money. But refinancing your mortgage to get a lower interest rate is just about as close as you can get.
The average interest rate for the benchmark 30-year fixed mortgage was 3.78 percent this week, according to the most recent national weekly mortgage survey from Bankrate.com, the online personal finance resource headquartered in North Palm Beach, Fla. That average includes 0.37 discount and origination points. With mortgage interest rates hovering below 4 percent, refinancing your home mortgage right now can lower your monthly payment and free up capital for your business.
Since the credit crunch hit several years ago, it's been largely difficult for many business owners to secure a mortgage refinancing. While interest rates remain at near-historic attractive levels, approvals haven't gotten appreciably easier.
Consider these tips for how to take advantage of low mortgage rates as an entrepreneur.
1. Document your income.
This is potentially the biggest pothole for entrepreneurs and small-business owners trying to refinance their home mortgage, says Greg McBride, the senior financial analyst at Bankrate.com. Entrepreneurs that are just launching their business often go without an income for a while and many small-business owners that have been around for a while don’t pay themselves much of a salary in hopes of lowering their tax bill. That can make getting a mortgage refinanced very difficult, says McBride.
2. Maintain a solid credit score.
Many new entrepreneurs get off the ground by maxing out credit cards and running on debt for a while. But, to be able to refinance your home, you still need to have a healthy credit score. “If you have a credit score of 700 or better, you are going to get probably the lowest rate you have ever seen,” McBride says. To polish your credit score, pay your bills on time. You can also improve your credit score by paying down credit card debt, but be sure to not completely wipe out your cash reserves, says McBride.
3. Consider government refinance programs.
To be able to refinance your home mortgage, you need to have equity in your existing home. In other words, when you have your home appraised, you need to owe less on your home than what it is considered to be worth right now. If that is not the case, you can consider a couple of government refinance programs, which are help residents that are “underwater” secure access to lower interest rates, says McBride.
One such programs is the Home Affordable Refinance Program (HARP), which is run by the federal Treasury and the Housing and Urban Development departments. The other is the streamlined refinance program offered by the Federal Housing Administration.
4. Choose your lender carefully.
Start with the bank that you already have a business relationship with, says Keith Gumbinger, the vice president of Riverdale, N.J.-based HSH.com, an online mortgage resource. Alternatively, ask members of a local trade group or association you might be a member of who they have had luck with. Also, a mortgage broker can help you survey your options, as opposed to going to one specific bank, Gumbinger says to Entrepreneur.com in an email.
5. Be organized.
With historically low interest rates, most banks are dealing with a flood of refinance applications. To ensure that yours gets processed expeditiously, have all of your paperwork pulled together ahead of time. “If you get your paperwork in order, your file is the one that is going to get worked,” McBride says. That includes proof of income, tax returns, pay stubs if you have them, bank statements and statements for any other financial accounts and outstanding loans, he says.
How much have you been able to knock off your monthly mortgage payment with a home refinance? What did you do with that freed up cash? Leave a note below and let us know.
Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.