STEP 1: Ask why you want
to refinance your mortgage
The general rule of thumb is mortgage refinancing
becomes worth it if the current rate on
your mortgage is at minimum 2 percentage
points higher than the prevailing market
rate.
There are also other considerations in
why you want to refinance your mortgage.
Click on Reasons To Refinance Your Mortgage
to find out more.
The more prepared you are as to why you
want to do mortgage refinancing, the lender
can provide advice to pinpoint which mortgages
can help you achieve your financial goals.
STEP 2: Find out the costs
associated with a mortgage refinance loan
Besides comparing the rates of your current
mortgage and what the market currently
offers, you need to know the fees that
go with refinancing your mortgage.
Some of theses fees are for applications,
appraisals, homeowner’s hazard insurance,
home inspection, lender’s attorney
review fees and survey costs. Fess for
all these services mentioned could vary
from $1,000 to $3,000. Other fees are
determined based on the percentage of
the loan: Loan origination 1%, mortgage
insurance 0.5% to 1% and points (broker
fees) 1% to 3%.
Perhaps the biggest deterrent to refinancing
your mortgage is the prepayment penalty
on your current mortgage. If you pay off
your mortgage early, there is a penalty.
The size of the penalty varies from 3
to 6% of the principal outstanding.
The costs associated with refinancing your
mortgage could be substantial. It helps
if you plan to stay in your current home
for several years. The mortgage refinance
costs will be spread out over a greater
period. For it to be worthwhile, the monthly
savings from the lower interest rate must
outweigh the refinancing costs divided
by the total monthly payments of the new
mortgage loan.
To get an idea of how much you can save,
just go to our refinance mortgage calculator
and enter all the necessary information.
STEP 3: Finding the right
mortgage loan and lender
In today’s market, there are many
products to choose from. It comes down
to picking the mortgage loan that best
fits your needs and wants. You should
contact several mortgage companies to
do a comparison. Mortgage lenders vary
in fees and costs. The type of mortgage
you pick depends mainly on how long you
intend to live in your home, your reasons
for refinancing a mortgage and the amount
of monthly payment you can comfortably
afford.
Always ask the provider to include all
the costs associated with the processing
of your new mortgage. Just getting the
annual percentage rate (APR) is not sufficient.
You do not want any surprises when you
are closing your mortgage. The best approach
is to ask the mortgage lender for a written
Good Faith Estimate (GFE). A GFE shows
the costs the mortgage company includes
in processing the loan.
STEP 4: Bring all your
necessary documents
To speed up the loan process, ask your
mortgage lender for an exact list of documents
and information that is required. By having
all the necessary documents on hand, you
will improve your chances of getting preferential
treatment by your mortgage company.
STEP 5: Match the loan
lock with your mortgage lender’s
closing time
If you want to lock in the mortgage rate
that is given to you by your lender, make
sure the lock extends at minimum up to
the lender’s estimate of long it
is required to close the mortgage loan.
It takes time to process a loan due to
the fact that mortgage loan offices and
various real estate professionals (appraisers,
attorneys and title agents) are busy.
Even if you have a rate lock of 30 days
and it takes the lender up to 60 days
to close the mortgage deal, you do not
really have a rate lock. In a situation
like this, your rate lock should match
the mortgage company’s closing time
requirement of 60 days.
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