Recent historically low rates created quite a rush on refinancing activity, making brokers and lenders quite happy with the increased business. Refinancing your home can be a great way to lower your monthly payments, but not all refinance deals are good ones.
Sometimes a refinance loan might seem like a money-saver at first, but you could end up paying much more. It’s important to carefully examine every aspect of a refinance deal to make sure it’s right for you.
If you have questions, your Solutions agent can recommend several local and national lenders and brokers to speak with as you research your options before you choose the refinance option that’s best for you.
To get the best deal, follow these easy steps:
Research Interest Rates
Always do your homework first. Interest rates change daily. Before you start shopping for a lender, spend a few days (or weeks) researching current interest rates to get a range. That way, you’ll know if the lender’s offer is too high.
Having those numbers in hand will help keep you focused while you are talking with lenders.
Comparison Shop Brokers and Lenders
To get the best deal possible, compare offers from multiple mortgage brokers or lenders through a database like Realtor.com’s Mortgage Rate Search. Ask for good-faith estimates from every lender to compare interest rates and closing costs before you decide on an offer.
Remember that good faith estimates are not going to be the actual costs, but will be close.
Examine Commissions and Fees
Mortgage brokers have different ways to earn commission. If you hire a broker, make sure you know if the broker is charging an upfront commission (typically 1% to 2% of the loan), if they’re paid by the lender and what additional fees (like an administration fee, application fee or processing fee) are included.
The good faith estimate should include these fees – make sure you ask the lender to point them out.
A broker’s commission is always negotiable. If you feel the broker’s fees are too high, ask for a better price. Many brokers are willing to work with fair counteroffers.
Know Your Loan
Before you decide on a loan, make sure you know what to expect with your loan type. Fixed-rate mortgage loans are fairly straight forward with a set interest rate and mortgage payment every month.
If you opt for an adjustable rate mortgage, the interest rate can go up and down over the life of the loan. Make sure you know the increase caps and the overall ceiling of the interest rate. Keep in mind, many ARMs start with a low introductory interest rate, which increases after you take on the loan.
If you don’t understand the adjustable rate mortgage and how it works, for example, don’t be afraid to ask as many questions as you need so that you will understand it completely.
Watch the Closing Costs
Closing costs are always part of any refinance. While these fees will probably come out of the equity of your home, don’t look at it like “free” money. Instead, treat closing costs like you were paying them out of pocket.
Weigh the monthly savings against the closing costs. For example, if you will save $300 a month and your closing costs are $6,000, it will take at least 20 months before you break even on the transaction.
Be Wary of No-Cost Loans
Watch out for no-cost loans. There are always costs to any lender or broker on every loan and if they are offering to waive these fees for you, they will resurface in a different form. Someone has to pay these costs. Perhaps your principal will increase or your interest rate will be higher. Either way, make sure to compare all aspects of a loan before selecting one.