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  • You have probably heard the rates for refinancing a mortgage are at historical lows. If that is the case, you may ask, why are the rates I am getting from my bank so high? Is it my fault? Unfortunately the quick answer is yes. However, have heart, there might be something you can do about it.

    First, your information was good. Refinance rates are mighty low right now. They have risen a little since the 2010, but only slightly. However, these record low rates are not for everyone. I know that, you say, but why?

    Well, although refinance rates of well below 5 percent are to be found, they are only available to those with good to great credit scores. So there you have it, your credit score may be to blame for your not so great refinance rate quotes.

    Refinance Rate Variability

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    The Washington Post recently published an interesting article on how refinance rates vary from householder to householder based on their credit  score. For instance, a home owner with a $200,000 mortgage with a credit score of 850, a rather good score, is likely to get a refinance interest rate of around 4.27 percent. This means that by the time he pays of his mortgage he will have paid $131,350 in interest, which translates to payments of $986 a month. However, what happens if your credit score is not so amazing. Maybe you missed a few payments on a credit card, or there is a bankruptcy or foreclosure looming in your far past, or you are new to the credit market an you don’t have much history to base a credit score, what then? There’s no nice way to say this…get ready to pay more. For example, if you have a credit score of 620, the bare minimum if you are to get your mortgage refinance application approved, you will be doing well if you find an interest rate of 5.86 percent. This translates into interest payments over the lifetime of the loan of $183,521 and monthly payments of $1,181.

    So, a difference of 1.6 percent in your refinance rate means you have to pay around $52,000 more over the life of the mortgage and around $170 more a month than your neighbor with a 850 credit score. That teaches us one thing: we need to get our credit score in line. How do we do this? That will be the theme for a new series of articles on Government Mortgage Help.

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