If you’re thinking about refinancing your home you’re probably already shopping for the best mortgage lenders. Shopping for refinance rates can be confusing and choosing poorly could cost you. Common mortgage mistakes like comparing quotes from different programs are currently costing your neighbors thousands of dollars. Here are a few tips to help you avoid the hazards when shopping for the lowest refinance rates from today’s best mortgage lenders.
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Common Mortgage Mistakes You Want to Avoid
- Fixating on the lowest refinance rates
- Comparing refinance rates & fees across different programs
- Not comparing closing costs correctly
- Choose a mortgage lender based on Annual Percentage Rate
- Neglecting to shop around from the best mortgage lenders
Getting the lowest refinance rates doesn’t automatically mean you’re getting a good deal. Especially if the offer is loaded with discount points and junk fees. Do you think choosing a mortgage based on the Annual Percentage Rate is a smart move? Mortgage lenders like to brag about their low APR refinance offers; however, the mortgage with the lowest Annual Percentage Rate usually comes with the highest closing costs and junk fees.
Sure, you can buy down your refinance rates but if you’re not able to recoup your closing costs you’re losing money no matter how great your interest rate.
Pick a mortgage program and stick with it. Don’t let a fast talking mortgage broker muddy the waters quoting refinance rates on a 5/1 ARM when you want 30-year fixed. It’s impossible to make an apples-to-apples comparison of lender fees unless you’re comparing offers from the same program. If you want a 15-year fixed mortgage then you should only be comparing fees from section 800 of the Good Faith Estimate from quotes on 15-year fixed rate mortgages.
Do you know which of your closing costs are negotiable? Can you spot a junk fee at a 100 yards?
You already know not to compare fees across different mortgage programs but did you know there are fees you can negotiate to pay less? When comparing refinance offers from today’s best mortgage lenders pay close attention to section 800 of your Good Faith Estimate.
First, make sure you’re comparing zero point quotes for your mortgage program. Next, separate the fees paid to third parties like attorneys or the title company. These fees should be pretty much the same across different lenders and generally cannot be negotiated. Next, look for junk fees like processing, rate lock, administrative and courier fees. These you can call out and question to avoid paying as a condition of your business. Finally, look at the loan origination fee.
The mortgage origination fee is paid to the broker or lender arranging your home loan. One percent is common; however, I’ve reviewed credit unions that charge as little as $400 for loan origination. Remember, the less you pay closing on your next home loan the more benefit you’ll get from lower refinance rates.
Annual Percentage Rate is the most manipulated marketing tool in your lender’s arsenal. Spend any amount of time shopping refinance offers from today’s best mortgage lenders and you’ll find they quote based on the lowest APR first.
This is because the lowest APR home loans come with the highest closing costs. The reason this happens is mortgage lenders manipulate their APRs with discount points to make them appear to be the best deal. If you choose the loan with the lowest APR you will have the highest closing costs.
Always compare refinance rates and fees with zero point offers from the same program across different mortgage lenders. Mortgage refinance rates are still at historically low levers so the only thing paying points does is separate you from your cash.
Many of your neighbors simply refinance with their current lender or bank because it’s convenient. Your home loan is the largest financial commitment most people ever make, isn’t it worth spending a few hours to get a better deal?
Refinance rate shopping isn’t hard and if you follow the tips outlined in this article you’re on track to get a better deal than most of your neighbors. Some of the best deals I’ve found have come from small, community-based credit unions so don’t assume the Wells Fargos and Bank of Americas of the world have the best deals. Pay attention to section 800 and never choose a mortgage based on the Annual Percentage Rate.
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