Rates are lower than they have been in decades and many people are looking to take advantage of this. Those people not looking to buy a new home are taking advantage of it in the form of a refinance loan.
This is why if you are looking at taking advantage of these kinds of loans, it is a good idea to know what you are facing when you do so.
There are many different options in the kinds of loans you are getting, the rates you will be paying and the closing costs you will be paying.
By understanding all of these, you will be able to make a better decision about refinancing your home.
1. Deciding Whether You Will Benefit from a Loan
Saving money on your interest rate will allow you to save money, but will it allow you to save enough to make sense? Many people who have an existing mortgage made a pretty good deal the first time around. This means that when you are saving money on your mortgage refinance, you are only going to shave 1%-2% off of your interest rate. While this is a pretty good deal if you look at it strictly in terms of the mortgage payment, you need to remember the closing costs.
Closing costs will be in the thousands and they will need to be figured into your total cost for the new loan. If you are not going to save enough money to compensate for the closing costs, than you are actually losing money on the deal. Those who are close to paying off their loan completely will not benefit from refinancing their loan. However, if you still owe quite a bit on your loan, you will be able to benefit from paying the closing costs on your new loan.
Take the time to look at your closing costs and how much time it will take for you to recoup the costs of the closing costs. If it will take you less than six months to recoup the cost of the closing costs, you might consider doing so even if you have a mortgage that is nearly paid off.
2. Getting the Best Refinancing Deal
Currently the finance industry is experiencing a buyers’ market. This means that the mortgage companies are willing to compete for your business. There is a wide range of prices that are currently being offered by the different lenders to attract people to finance with them. This includes refinance rates. Shopping around to the different lenders will allow you to get a better deal on the rates you are paying for your mortgage. In many cases, the rates being offered by the lenders can range as much as over 1% from one lender to the next.
Of course, you need to look beyond just the rates that you are going to pay on the actual loan. Pay attention to the fees you will pay in your closing costs. Many financing companies are willing to work with you in regards to their fees associated with the closing costs. By negotiating with different lenders, you will have a decent opportunity to save some money on the total cost of the new loan you are getting.
One more thing you might want to pay attention to when shopping for a lender is to look at the quality of the service you are being provided by the lender. This will help you to avoid such things as slow turnaround times when leading up to the closing date. It will also help you to get more out of your negotiations.
3. Paying Extra at the Closing Table
While most people are thinking about ways to pay less at the closing table, you may benefit from paying more. If you have any money in savings, you may want to consider using some of that money to get what is known as a “cash-in” refinance. This is opposite of the loans many are looking for where they cash in a smaller mortgage for a larger refinance and walk away with cash. Instead, you will get a smaller refinance to replace your existing mortgage.
In order to get a cash-in refinance, you will need to bring cash to the table. This not only will help you if you are underwater, but it will benefit you if your credit rating is not good enough to allow you to qualify for the loan. You will get a lower rate and have less to pay off in your mortgage, so you can recoup the money in savings easier.
4. Get Your Rate in Writing
The lender is willing to say just about anything to get you to the table. Make sure that if they are offering you a super-low interest rate that you are able to get them to put it in writing. You want to request that they send you a “rate-lock sheet”. They can send it you by email or fax it to you. This will include not only the rates that they are offering, but when the deal will expire. You can generally ask for a 60-day lock in guarantee and finance companies will be willing to give it to you. Once you have it locked in, you will not have to worry about the rate going up at closing.
5. A Note about Closing Costs
The traditional upfront charges are still the best way to make sure you are getting the best deal. True, it will mean that you will have to actually have the cash at your closing, but it will mean that you are able to have the amount you want for your refinance loan and you will have the interest rates you are looking for. If you go for a refinance in which the closing cost is “rolled-in” you will have to face paying off the closing cost over time which will cost you a few extra thousand. If you get a loan that does not have any closing costs, you will pay for it with a higher interest rate on your loan which will cost even more than what your closing costs would have been.
Brian Harding is a mortgage broker helping people get out high interest mortgages with variable rates and flip them into a refinanced mortgage with low rates, 30-year fixed, stable mortgages. Click here to learn more about your refinancing options.