Are you one of them? Are you sticking with a too-high interest rate because you’re not sure if you’ll qualify, or because you dread finding a lender and going through the process?
We’ll admit, getting a mortgage loan can’t be classified as fun, but it could be well worth your effort. Before you decide not to bother, consider these questions:
1. How much could you save? It all depends upon the rate you’re paying right now, and the rate you could qualify for in a refinance. It also depends upon how much a lender will charge to process your new loan.
Just for reference, consider this: For every $100,000 you owe, your payment will drop by at least $50 with a 1% reduction in your interest rate.
2. Do you plan to stay in your current home long enough to make it worthwhile? Unless you qualify for a program that allows a refinance without paying for an appraisal fee, etc. it will generally take a year or more to “break even” on loan costs. So if you’re planning to sell the home soon, refinancing is a poor idea.
3. Is your current lender the best choice for a refinance? He or she may or may not be the best choice, but it can’t hurt to start there – provided you were happy with the service you received the last time around.
Make an appointment and speak with your current lender. Find out the rate and terms he or she will offer specifically to you. Unless there’s some special program, this will involve going through the approval process, but it can be worth the effort in the long run.
Next, see what other lenders have to offer. It’s fine to check with 2 or 3 lenders before making a choice, and those lenders need not be in your own community. As long as they’re willing to talk with you on the phone and do return your calls when you have a question, it isn’t necessary to sit down across a table.
You will have already gathered all the information they need, so it will be easier the second time around. Don’t worry about having your credit report accessed twice. The credit bureaus know that people shop for loans, so if the inquiries are all within a short period of time, extra inquiries won’t harm your credit.
4. How can you find the right lender? One good way is to ask your favorite real estate agent for referrals. Agents work with lenders every day and know which have good programs – and good service.
It’s important to choose a lender who will take time to talk with you and explain anything you don’t understand. It’s also important to find someone who will return calls promptly and with whom you feel comfortable.
5. What should you be looking for when you interview a lender?
Interest rates: These change daily, so if this is the deciding factor, check with each of your top choice lenders on the same day.
Terms: Be sure that the lender outlines the terms attached to your loan, and tells you what can or will happen if the loan is sold. This is especially important with variable rate loans, but do be on the lookout for early payment penalties.
Closing costs: While this has become more regulated, there’s still a difference in closing costs between lenders, so get this in writing. This is one of the figures that plays heavily into whether or not a refinance is a good idea. If closing costs are $3,000 and you’ll only save $50 per month, it will take 5 years to break even.
APR: This is the annual percentage rate. It differs from the interest rate you’ll be quoted in that it combines the interest rate with closing costs such as origination fees and mortgage insurance and gives you the cost of your loan expressed as a percentage.
Closing time: When you’re quoted an interest rate it will be “locked” for a set number of days, usually 45. If the loan doesn’t close within that specified number of days, it “unlocks” and the rate can change. If you’re refinancing to save .5% and the rate goes up by.5%, then it makes no sense to go forward.
Each lender will give you a good faith estimate outlining rates, terms, and fees. Take them home and make comparisons, so you can make a wise decision. If two are the same or very close, choose the one who gives you a good feeling.
When you’re considering a refinance anywhere in Texas, call the Mike Clover Group at Homewood Mortgage. We’ll be happy to get you pre-approved, and then to go over all the numbers with you so you can see whether a refinance is in your best interests.
Yes, it takes a little time, but it will be time well spent if it can save you many thousands over the life of your loan. Remember, money you save is worth more than you earn because it’s not reduced by income tax!
You can reach us at 800.223.7409 or apply on line at mikeclover.com.