Refinancing Offers Should Be Carefully Considered
Be wary of Refinance Pitfalls and Advertised Rates
Advertised rates are usually based on the best-possible scenario. Your financials are in tip-top shape and you have a superior credit score.
Make sure to do your homework on what your interest rate would be specific to your financial situation.
Gather all your quotes on the same day and around the same time to make sure you’re comparing apples to apples.
Don’t rely completely on your broker
Shop around a little. Customers who received two or more quotes have a higher satisfaction rating.
Watch out for ‘junk fees’
Make sure to factor in how much you’ll pay for account commissions and transaction fees including the lender’s fee for processing and underwriting, credit reports, title fees, origination fees.
Are you actually saving money
Having a clear picture of all the costs associated with a refinance can help you determine the break-even point. You’ll want to calculate the total sum of your closing costs and divide that by the monthly savings.
If you’re spending $3,500 in closing costs to save $100 a month in your mortgage payment, the break-even point will be 35 months—or about three years. If you’re not planning to stay in your home at least that long, it’s probably best to keep your current mortgage.
Look out for ‘no-cost’ refinances
There’s no such thing as a free lunch, a free mortgage, or a free refi. There are always costs to refinance your loan, so a “no-cost” loan just means the lender is hiding those costs in a different place—for example, with a higher interest rate.
The only way to truly gauge the entire cost of a refinance is to do the math and figure out exactly how much you will be paying on a monthly basis and over the life of the loan.
Explore other loan options
A 30-year fixed mortgage is not always the safest bet when refinancing, it’s key to explore different loan options with your lender—it could save you some big bucks.
Borrowers should tell lenders their goals and ask lenders to explain the merits of each option and advise them on what’s right for them.
You might find that a 15-year fixed loan better suits your needs now. Or if you don’t plan on staying in your current home much longer, an adjustable-rate mortgage can be a good bet.
Factor in service
Although the refinance process may last only a month or two, consider this: You’re potentially in a relationship with the lender for 30 years.
If you need to call the lender with an issue down the road, you want to feel confident it’ll be responsive and attentive to keeping money in your pocket. So before you commit to a lender for your refinance, consider whether the lender answered your questions thoroughly, responded to you promptly, and explained all of the refinance options that could be right for you.