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Refinancing your mortgage: Shopping more than mortgage rates

Posted by  on May 03, 2011
 

Comparing mortgage quotes line by line is assists with determining true costs. Understanding features and benefits of refinance loans you're considering can also save money.

Lowest mortgage rates and more: Finding hidden savings

Your reasons for refinancing are important for locating a home loan meeting short term needs and long term plans. Consider the following aspects of selecting a refinance mortgage:

How long you plan to keep the home you're refinancing: It may take several years to break even on the cost of refinancing a mortgage; these costs must be deducted from any potential savings realized through lowering your mortgage rate. If you're going to sell in a few years, an adjustable rate mortgage (ARM) loan may provide the lowest mortgage rates available until you're ready to sell.

Your goal for becoming mortgage-free: If you're nearing retirement or are financially capable of repaying your mortgage sooner, consider refinancing to reduce your mortgage rate and the repayment term. A lower mortgage rate assists with accommodating the higher payments required of a shorter home loan repayment term. Refinancing to a shorter repayment term retires your mortgage faster and can save thousands in mortgage interest. Using free mortgage calculators can help with estimating savings realized by refinancing from a 30-year mortgage to a 15-year loan.

Mortgage lender fees and third party vendor charges

Mortgage quotes include estimated loan costs charged by third party vendors including title insurance companies, closing attorneys or agents, public record recording fees, and appraisal fees. Mortgage lenders also charge a loan origination fee, but may add "junk fees" that can be negotiated. Watch out for document drawing fees, copying charges, and other routine business expenses. Third party fees are generally not negotiable, but you can shop among service providers for your best deal.

Paying points

A point is one percent of the mortgage amount: one point for a $200,000 mortgage is $2000. Points may be charged based on your creditworthiness (the higher your credit score, the lower the points charged), or points may be charged for locking in mortgage rates for a specified period of time. Compare points charged on mortgage quotes you receive, and negotiate accordingly.

Refinancing your mortgage: doing the math

  • Focus on two or three mortgage quotes for the same loan amount best matching your needs and goals.
  • Compare mortgage rates, lender costs, third party costs, and points for each mortgage quote.
  • Calculate the difference in interest between your current loan's remaining term and a refinance mortgage. Compare the savings between a refinancing to a 30 year mortgage and a 15 year mortgage. Deduct estimated closing costs from potential interest savings.

Reviewing all aspects of mortgage quotes provides a more accurate estimate of savings, as fees and costs may vary within each category. One lender may not charge points, but instead charges higher lender fees. Please keep in mind that actual costs can vary due to changing mortgage rates and additional costs as determined by factors including property appraisals and title evaluations.

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