Mortgage refinancing errors can cost upwards of ten thousand dollars. It is important for you as the borrower to adhere to the following tips so you can save yourself the grief associated with losing money unnecessarily.
Conditions For Refinancing
First of all, you should never attempt to refinance if you are under heavy time constraints. This kind of pressure will almost always cost you money. If loan specifics seem to be changing suddenly, i.e. getting more expensive, make sure you do not corner yourself so that you can walk away from that particular refinance option. Generally speaking, purchase loans are harder to walk away from. To be safe, you should make sure that the lender has solidified the interest rate so that you are not surprised by sudden fluctuations. To see whether you should refinance your mortgage, click on our mortgage refinance calculator.
Closing costs are not easily defined by a particular dollar amount. They vary greatly depending on the lender. The closing costs of a loan are usually in terms of points. A point is simply a single percent of the amount of the loan. It is also important to get quotes from multiple lenders so that you can compare the specifics of the various offers and see which is best for you. If a particular mortgage lender offers you a quote that is lacking particular cost, don’t be fooled. Although this offer may appear to be cheaper than the rest, you must look at each offer carefully and consider all variables. Also, keep in mind that the total cost of a loan will be different if the quotes are for different loan types.
If you are using a mortgage lender to assist you in your refinancing quest, you should request a copy of the locked-in interest rate once he has come to an agreement with the lender. Once you are comfortable with the established rate, you can go ahead and sign the loan papers. Make sure that the lenders thoroughly explain each loan option to you. What may be an appropriate option for some may not be the correct choice for you.
You should also be aware of prepayment penalties, should a particular loan option have one. If applicable, it would be wise to investigate the length of the payment period, and the exact cost. In most cases, a short term prepayment penalty will bring about a lower interest rate. Take note of your lender’s policies. If you refinance with your lender, he may waive the prepayment penalty on your current loan, or carry over the remainder of the payment period to the new loan.
Type of Mortgage Loan
As a homeowner you should have a fairly decent idea of how long you intend on keeping the house. If you plan on staying for an extended period of time, say over ten years, but you get approved for a fixed loan of five years, there is a good chance that the interest rate will increase once the initial five years have expired.
If you choose to refinance your loan or sell the house, you incur what is known as a hard prepayment penalty. However, a soft prepayment penalty comes about only after a refinance, and not by selling the house. Soft prepayment penalties give the borrower more options, as they are able to sell the house once the loan has been refinanced without incurring further prepayment penalties.
Be smart when dealing with the loan process. Although there may be many attractive options, be sure that you are able to make the payments and that you are not borrowing more money than you need. If you are confused about the type of loan that may be right for your situation, click to find out about mortgage loan types.