With mortgage rates at their lowest levels since WWII, many people are choosing to refinance their home. However, refinancing the wrong way can end up costing you more in the long run. Following just a few simple tips can help you save money when refinancing your mortgage.
See Your Current Mortgage Lender First
Your first stop on the road to refinancing your mortgage should be your current mortgage lender. As long as you have a good record of on-time payments, they should be eager to keep your business.
Keeping the same lender has several benefits. Refinancing should be quicker, easier and may even be cheaper. The lender may be willing to reduce or even waive some refinancing fees for a good customer. Staying with your current lender also affords you the opportunity to get a reissue rate for your title which is not available with a new lender. A reissued title is about 70% the cost of a new title.
Avoid No-Cost Refinancing
There is always a cost for refinancing your mortgage. Unless offered by your current mortgage lender, steer clear of no-cost refinancing offers. There is no such thing. The no-cost refinancing gimmick is usually used by lenders to soak you for large and unnecessary fees.
No-cost mortgages that your current lender may offer you actually do have fees involved, but they are rolled into the loan. These fees are paid by you over the life of the loan. So, instead of paying upfront fees, you pay a little bit of the fee with each mortgage payment. That means you pay interest on the fee over the life of the mortgage. That could leave you paying as much as double or triple the original fee.
Shop Around with Care
By all means shop around for the best refinance deal, but be careful. Don’t freely give out your personal information such as your social security number. Also, don’t shell out any money until you have thoroughly checked out the lender. You can call your state’s division of banking to find out about a lender’s track record. While you may need to pay a small initial fee to start the refinancing process, you should not be paying the bulk of the cost of refinancing your mortgage until the closing papers are signed.
Know the Actual Cost
You need to consider the actual cost of refinancing to decide if it is the best move for you. Sure, you may save money on the interest rate, but remember to figure in the fees involved in the refinancing process.
A good rule of thumb is that you need to see a 1% or higher difference in your interest rate in order to come out ahead. That said, the interest rate savings should be at least .50% lower or you should pass altogether.
If you can switch from a variable to a fixed interest rate, you will save in the long run. While interest rates today are some of the lowest in 50 years, eventually rates will go up. Any temporary savings you may see from refinancing your mortgage may dissolve once your variable rate goes up. You may even end up paying a higher interest rate than on your original mortgage.
The Advertised Rate is Only a Guide
When advertising interest rates for refinancing your mortgage, banks will always state their best rates. It is important to understand that these are not necessarily the refinancing rates you will be offered. Lenders usually only offer these rates to the top 10% of borrowers. Refinancing rates are always figured on an individual basis. Criteria such as your credit score and the amount of the loan will all be used by the bank to determine the interest rate they will offer you for refinancing your mortgage.
Check Those Fees
Make sure you understand all fees associated with refinancing your mortgage. Refinancing may actually cost you more over the life of your mortgage due to fees. Ask to see a list of fees before the closing so that you have time to investigate them. Ask and have answered any questions you might have regarding fees. Request that the bank disclose all fees attached to the loan, whether they are paid at the closing by you or rolled into the loan. This is not required by law, but most reputable lenders will provide this for you upon request.
Though there is no standard for refinancing fees, commonly charged fees include origination or application fees, points and application fees. The Department of Housing and Urban Development (HUD) is in the process of recommending legislation that will make disclosure of all home buying fees mandatory.
Credit Info Center