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When to Refinance

By: Investor Solutions

By: Investor Solutions, Inc.

With mortgage rates at their lowest percentages since the late 1950-s, many homeowners have found a new motivation to take a closer look at their current mortgage to see if refinancing might add some extra bucks to their pockets. But there are still many homeowners out there that haven-t reaped the benefits of refinancing. Are you one of them? Even with refinancing, you’ll still need to do your homework and shop around for the best deal.

According to Rhonda Constantine (Licensed Mortgage Broker) with American Financial Mortgage Consultants in Orlando, ‘The old Rule-of-Thumb was a 1%-2% lower interest rate down from your current rate would make refinancing worth your while. Nowadays, as little as a 0.75% difference could save you some serious cash, it-s up to you to determine if you will be in the home long enough to recoup the costs associated with refinancing your loan’. Refinancing calculators are great tools to use to help you evaluate if refinancing will save you money over the long haul. Some really resourceful financial calculators are available at www.bankrate.com.

So what-s the best way to start looking to refinance? You should always check in with your current lender first. If your current mortgage was not sold off in the secondary market, you may be able to do a ‘loan modification’ which is simply the easiest and cheapest way to pay a lower interest rate for the remainder of your term. Your current lender will issue a new rider to your current loan that could save you thousands in closing costs. However, if you-ve lived in your home for a couple of years, it-s likely that your loan has been sold in the secondary market (Freddie Mac, etc&). In this case, some lenders may offer a ‘streamlined’ mortgage, which typically involves the normal closing costs associated with buying a home, but you still obtain the lower interest rate that you desired and may avoid some costs such as application fees, credit check, and appraisals.

If your not happy with your current lender, or they just refuse to modify your current loan, then let the hunting begin. Be aware that with the overwhelming number of refinances going down some banks are now taking between 30 to 60 days to process loans. Most mortgage brokers have a stronger sense of urgency and can turn loans around within 3 to 4 weeks. So you may want to try to lock your rate for 45 days or even longer. Where you find your next lender could include friends in the business, your local bank, or an on-line search service. There is no ideal place to find the perfect mortgage loan tailored just for you, but some of the best on-line websites that I have found to shop around for new mortgage loans include http://www.eloan.com or http://www.lendingtree.com.

Under current Federal Law, lenders are required to provide borrowers with a Good Faith Estimate (GFE) of settlement charges three days after they apply for a loan. Although there are no laws requiring lenders to provide cost estimates prior to application, lenders will compete for your business, so you should insist on an estimate of the closing costs associated with refinancing through that lender. Remember, it-s your job to obtain numerous estimates prior to making your decision to select a particular lender. Since some lender fees are negotiable and some are not, it-s important that you are aware of such ‘trash fees’ as processing fees, underwriting fees, document fees, application fees, settlement costs, lender-s inspection fees, and mortgage broker fees. Many of these fees can be waived or lowered by the lender to beat the competitor-s costs. Prior to closing, always obtain a copy of your final costs from the lender known as an HUD-1 settlement statement of costs, it-s a good idea to compare this to the GFE for any hidden costs. Be weary if you notice any costs associated with a yield-spread-premium, for example if you lock in at 6% and then rates drop to 5.75% the lender may pay the mortgage broker a YSP to keep you at the 6% loan. These additional fees/ kickbacks are required to be listed on the HUD-1 for your review.

If your equity in your home exceeds 20% and your current lender is giving you the runaround when you ask them to drop the PMI (Primary Mortgage Insurance), your only option may be to refinance. Or you may be looking to avoid PMI by adding a home equity loan to cover as equity on your primary mortgage, make sure you bring this up at quote time, since not all lenders are willing or able to provide the home equity loans for this purpose. Don’t forget to include your homeowner insurance, property taxes, homeowner association dues, and maintenance when you are calculating your new payment amount.

Basically, in the end, you want to find a lender that you feel comfortable handling your loan. Do they respond to your phone calls in a timely manner, reply to your emails, and carefully explain all the costs listed on the good-faith-estimate? Some lenders may want you to pay a fee for a detailed quote, tell them to ‘take a hike’, and move on. Most importantly, determine how many months it will take you to break even on the new loan and make sure that you plan on living in your home at least that long. Happy Hunting!