If you decide that you are ready to refinance your mortgage, you will want to contact several mortgage lenders or brokers (including your current mortgage lender) to discuss their loan products, rates, closing costs, and fees.
Refinancing your mortgage will affect your financial future, so it pays to invest some time and effort in finding the best deal for you.
In trying to decide what refinancing option is the best for you, here are some items to keep in mind:
Low- or No-Cost Refinancing
If you decide to refinance with your current lender, you may be able to negotiate reduced points or having the loan application fee, credit check, or title search fees waived. A lender other than your current lender may be willing to negotiate these fees as well.
Some lenders and brokers offer "no-cost" refinancing, in which you do not have to pay most of the required upfront processing costs and closing fees. Instead, you may pay a higher interest rate or the costs may be added to the amount you are borrowing.
Interest Rate Lock
An interest rate "lock" or "lock-in" is an agreement by the lender to hold a quoted rate on your loan for you for a specified period of time. Interest rates change often, even hourly sometimes. Ask if and when you can lock in the rate. This may be at the time you apply for the loan or when the lender approves the loan. You'll also want to ask if there is a charge for locking in the rate, how long the lock-in will remain in effect, and whether or not you can obtain a lower rate if interest rates decline before your loan closes.
Re-issue of Title Insurance Policy
A title insurance policy protects the lender (lender's policy) or the homeowner (owner's policy) against loss arising from disputes over ownership of or liens against the property. You should ask your settlement or closing agent to determine whether your title insurer can reissue the policy, which may save you money.
Miscellaneous Fees
Ask about whether fees such as recordation, document preparation, courier, notary, tax services, and other fees can be waived. You may also have to pay fees depending on the type of loan you have chosen or other factors: for example, the funding fee for a Department of Veterans Affairs (VA) loan guaranty, the mortgage insurance premium for a loan insured by the Federal Housing Administration (FHA), or private mortgage insurance premium. These types of fees generally cannot be waived.
Prepayment Penalty
You should determine if your existing mortgage has a prepayment penalty clause. If so, and you pay off your existing mortgage earlier than the terms stated in the loan documents, you may be required to pay a penalty or fee. If your loan is subject to a prepayment penalty, your loan documents should indicate the period during which the penalty applies and explain how the amount of the penalty is calculated, for example, sometimes it is a percentage of the outstanding principal balance of the loan.
In many states, mortgage prepayment penalties are prohibited or limited by law, regardless of the provisions contained in your loan documents. You may wish to contact the appropriate state regulator for information about the laws of your state and whether prepayment penalties can be enforced in your state.
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