5 Important Refinancing Points

When considering refinancing your mortgage, it literally pays to be smart. Clearly, the more information that you can gather concerning your options, the better position you’ll be in to make good financial decisions. Keep these points in mind when shopping for refinancing; they could very easily save you thousands.

  • Remember, the lowest interest rate offered is not necessarily the best deal. Many lenders will offer a very low rate to get you in the door, only to charge you several points on top of the loan. A point is a fee equal to one percent of the loan. A one-point fee on a $150,000 loan would be equal to $1,500; a two-point fee would be $3,000.
  • Remember, closing costs can vary with different lenders. Closing costs typically include things such as credit report fees, title company search and insurance fees, loan origination fees, appraisal fees and documentation fees among others. Lenders are bound by law to provide you with a Good Faith Estimate of closing costs within three days of taking your loan application. Your actual costs may vary slightly because the lender does not always know what the exact cost of a certain fee will be from a third-party provider. And different lenders themselves can charge different rates for their loan services. Also keep in mind that some lenders may advertise “no closing costs” on their refinance loans. The lender may pay the closing costs for you, and then recoup those fees (and then some) by charging you a higher interest rate on the loan.
  • Remember, there may be other fees involved when you refinance. For example, some lenders may require that you keep an amount equal to 12 months of property tax in escrow. Others may require six months worth of funds to be held; other lenders might not require any escrow money at all. While you’re at it, ask if your homeowners insurance will be paid by you directly or if the lender will require an escrow account for that as well.
  • Remember, an online bank might give you your best loan deal. Online banks may have lower overhead costs and more streamlined account and loan processes, and pass those savings on to their customers in the form of more attractive loan and earnings rates. Doing your research online can turn up some very competitive loan rates. But remember; check out any online bank that you are considering with the Federal Deposit Insurance Corporation (FDIC). This is actually a good idea to do for all banks that you have any dealings with.
  • Remember, get everything in writing and pay attention to deadlines. For example, if you are quoted a specific interest rate, make sure that it’s given to you in writing. Be aware, however, that interest rates are only guaranteed, or locked in, for a short period of time, usually thirty days. If rates go up during that lock-in period you‘ll still keep your guaranteed rate. If rates go down during that time, most lenders will automatically give you the lower rate, although they are not legally obligated to do so.

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