This may be one of the best times to refinance if there ever was one. The FOMC has just lowered the key target lending rate to less than 1% for the first time in over 50 years. Here are 5 tips to certainly go over before you commit to refinancing:
1) Do your homework!
Know ahead of time what payment amount you are comfortable paying. Use mortgage calculators ( available online) to determine what your payments will be. There are three major variables to compute your mortgage payment and they are your mortgage amount, interest rate, and term (number of months).
2) Shop around!
Shop at least three different and reputable lenders. Know that you're comparing the same exact programs with the same terms. Don't shop three different lenders with three different programs because there is no way of knowing if you are getting a good deal. The objective here is to analyze three deals of the exact same program (i.e. 30 year fixed rate).
3) Get Good Faith estimates upfront and in writing.
I cannot emphasize enough how important this step is. There are a lot of fast talking salesman out there who are much smarter on the subject than the average consumer. This will help ensure you know what you are getting and help avoid any misunderstandings or misrepresentations down the road. Compare everything but pay special attention to the APR (annualized percentage rate) as this is the "true interest rate" because it takes into account your closing costs.
4) Avoid paying any monies upfront.
The only fee you should ever be asked to pay upfront before you close on your mortgage is an appraisal fee. However this should only be done after you already decided on your lender and specifically ask you to. Typically this fee is in the $300 range for an average home although it could go up to $5oo-600 for a larger one.
5) Beware of early redemption charges and variable rate loans.
As mentioned earlier, this is an opportunistic time to refinance. Conventional and FHA mortgage rates are currently in the 4-5% range. Now is a great time for a fixed rate and conversely, a poor time for an adjustable rate mortgage. Avoid all loans that charge early redemption fees or prepayment penalties for paying off ahead of time.
Paul McParland has been involved in finance and real estate for more than twenty years. For more information on ways to save money visit his website at http://www.consolidation-guide.com.
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