Some Money-Saving Home Equity and Refinance Tips

  • When loan-shopping, check with your current lender first. If your payment record is good the lender may waive some fees in order to keep your business.
  • On the other hand, your current lender could try to fleece you. Most people continue to use their current lender because of convenience. There's also a comfort level due to having done business previously. And, sadly, they don't want to have to make very many decisions. Be assured that your lender is well aware of all of this, and may therefore only offer you just enough of a perceived benefit to keep you from looking elsewhere, deflecting your attention away from the fact that his or her offer really isn't very competitive. Your best bet is to start with your current lender, then shop the market, returning to your lender when you find a good deal to see whether it can be matched or beaten.
  • Comparison shopping is especially critical if you have bad credit. Almost all lenders today offer subprime programs of some type. Additionally, nearly all mortgage brokers work with subprime lenders, and some specialize in them. There's likely to be a lender out there that will make you a loan regardless of your credit circumstances; you just have to find the right one.
  • If you have to refinance at a certain time because your current mortgage has a large balloon payment or the interest rate is going to adjust upward, be sure to allow yourself plenty of time. More than a few people have taken bad refinance deals when the lender changed something at the last minute but they felt so pressed by the upcoming deadline that they felt unable to back out.
  • If your current loan has a prepayment penalty, see if you can get your lender to waive it. Some will do this on condition that you stay in-house and refinance with them. If your lender won't play ball, you may have to wait the out the prepayment term. But let the lender know that you will assuredly take your business to someone else for this type of treatment.
  • Additionally, don't take a new loan that has a prepayment penalty. There are scores of lenders and loans in the marketplace that won't burden you with it; you needn't accept one.
  • Don't fall for the hype of a "no closing cost" refinance. If a lender pushes this at you, just be aware that the fees have been added into the cost of the loan. There's no free lunch.
  • When shopping for a home equity loan (HEL), be sure to thoroughly check for any default penalties. These clauses, like those now included with credit cards, can jack up your interest rate if you miss or are even late with a payment. If you see this penalty, keep shopping.
  • If you're refinancing and you're not sure about the stability of interest rates, consider a rate-lock. Many lenders today normally include 30- to 45-day locks with their quotes. For home equity loans this should be adequate, because they generally don't take as long to close. Refinances, however, have been known to take longer, and you don't want to defeat the purpose of the transaction by having to pay a higher rate.
  • Finally, try to keep a cushion of at least 20% equity in your home. If your combined loan-to-value ratio dips into this amount you could end up paying higher interest rates on the HEL.

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