Things I Learned When I Refinanced My Home
Some days I feel like a home refinancing expert. I've refinanced
my home twice in the last three years to take advantage of
attractive interest rates. Although interest rates have been
rising lately, refinancing may still be an attractive option if
you're paying a high interest rate on a mortgage. When my
husband and I built a new home in 2000, we felt interest rates
were a little high so we opted for a three year mortgage with an
8 percent mortgage rate instead of locking into a 15 or 30 year
mortgage with a slightly higher rate.
We were counting on interest rates going down before our
mortgage was up for renewal and they did. When the rates went
down to 5.5 percent two years later we refinanced. To find the
best rate I could, I called my local banks, credit unions, and
savings and loan companies. I also checked interest rates on the
Internet.
One year later, while checking on the Internet I found a rate of
4.375 percent. (I looked up interest rates because someone told
me they had just gotten their mortgage refinanced at 4.5
percent). I ended up refinancing again but not before
calculating how much I was going to save in interest versus how
much the additional closing costs were going to be. My
calculations showed it would take approximately 18 months of
payments at the lower rate to recoup the money it cost to
refinance. Although my husband and I now have a very attractive
mortgage rate, our payment is slightly higher than it was when
we were paying 8 percent interest. But instead of having a 30
year mortgage we have a 15 year mortgage. The low interest rate
is allowing us to pay our house off in half the time we thought
it would! http://www.easymortgagerefinancingloans.com/refinancemort
gagequote/
Although interest rates have been rising lately they are still
reasonable, especially compared to the interest rates on many
credit cards. In addition to looking for a lower interest rate,
people may be considering refinancing to take some of the equity
out of their home for things like: paying off high rate credit
cards; to fund a home remodeling project; or pay for a child's
college education.
Below is a list of some of some things I learned during the two
times I refinanced in the past few years.
1) The lowest interest rate is not always the best deal. Some
companies may offer a very low interest rate but may charge
several "points." A point is 1 percent of the amount you are
borrowing. As an example, if you want to borrow $200,000 and
three points are being charged it will cost you $6,000 to borrow
the money in addition to other closing costs.
2) Closing costs vary with lender. The U.S. government requires
lenders to provide what is called a "Good Faith Estimate" of
what your closing costs will be. Closing costs typically include
things such as: credit report fees, title company service fees;
title search fees; loan origination fees; appraisal fees; and
documentation fees. Your lender will give you an honest estimate
of what your closing costs will be. Your actual cost may vary
slightly because the lender does not always know what the exact
cost of a certain fee will be such as the appraisal fee because
they probably work with several appraisal companies who likely
all charge different rates. One additional thing to keep in mind
about closing costs: you may see advertisements that proclaim
their company does not have any closing costs. That may be true.
The lender may pay the closing costs for you but the tradeoff
for you will likely be paying a higher interest rate.
3) There may be other fees involved when you refinance. For
example, the first company we refinanced with required that 12
months worth of property tax money be kept in escrow with them.
The credit union we took out our original loan with didn't
require any property tax money in escrow. We had to come up with
a big chunk of money that we hadn't planned on for that tax
escrow account. The second time we refinanced I was smarter and
asked how much money needed to be kept in tax escrow. It was
only 6 months of property tax money so we ended up getting part
of our tax escrow money back.
4) Ask if your homeowners insurance will be paid by you or if
the lender will require you to pay money into an escrow account
each month so they can pay it for you. Many lenders require you
to pay into an escrow account to ensure the homeowner's
insurance will be paid.
5) Ask if the loan you plan on taking out can be sold to other
lending institutions. The possibility of your loan being sold
may or may not be an issue for you. It's not uncommon for loans
to be sold. It's even likely your local bank sells some of its
mortgages. I don't happen to mind if my mortgage is sold to
another lending company. It's happened to me once and it was an
almost seamless process on my end. I only had to do one thing
and that was set up a new automatic payment from my checking
account because I prefer to have my mortgage payment taken out
of my checking account automatically each month. That way I
don't have to worry about forgetting to pay it on time and
possibly incurring late fees.
6) An online bank might be a good place to do business with. A
good way to find out if the bank is a real financial
institution, check to see if it is insured with the FDIC. You
can do an online search with the phrase "banks insured with
FDIC" or a similar phrase to find the current link to check.
When I found the 4.375 percent interest rate it was with an
online bank whose workforce was located in the Eastern part of
the United States. I live in the Midwest. Thanks to the
technology of the Internet I was able to easily do business with
the bank. Any documentation I needed to fill out was either
e-mailed, faxed, or posted on a secure Internet site that I
accessed with my own personal id and password. The secure
Internet site was associated with a nationally known lending
company. For the final signing the lender contracted with a
lending company in my area and that's where my husband and I
went to sign the final papers and close the loan.
7) Get everything in writing and pay attention to deadlines. For
example, if you are quoted a specific interest rate, get it in
writing. Be aware though that the interest rate you are given
will only be guaranteed or locked in for a specific amount of
time, usually 30 days. If interest rates go up during that 30
day period you will still get the lower rate you were guaranteed
in writing. If rates go down, some lenders will automatically
give you the lower rate. It is possible that the rate guarantee
period may be extended. When we were in the process of our
second refinancing, a lot of other people around the U.S. were
refinancing because rates were really attractive. As a result
our lender had a difficult time getting an appraisal scheduled.
Even though we didn't close until nearly 2 weeks after our 30
day deadline our lender honored the rate they had guaranteed us
even though rates had gone up.
The above items are things I learned during the two times I
refinanced. I've done my best to include everything I learned
but your experience with refinancing may be a little different
and you may find out things I didn't. The best advice I can
offer if you are thinking of refinancing is to take time to do
research, compare lenders, find out what your total costs will
be, and ask questions about anything you don't understand or are
not sure of. This will help make the process easier for you and
help eliminate any unpleasant surprises that cost you more money
than you were planning on spending for refinancing.
About the author:
D Ruplinger is a writer for EasyMortgageRefinancingLoans.com. To
learn about refinancing online and to find the best refinancing rates, visit us
D Ruplinger
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