Getting the lowest refinance rates means you’ll lower your mortgage payments while stuffing less cash in your lender’s pockets. The problem is that focusing only on refinance rates often gets you the most expensive out-of-pocket fees. Here are several tips to help you avoid common mortgage mistakes when shopping for the lowest refinance rates from today’s best mortgage lenders.
Don’t Pay For The Lowest Refinance Rates
The most frustrating part about shopping for a mortgage lender is finding trustworthy refinance rate quotes. Part of the problem is that many homeowners approach loan officers by “fishing” for refinance rates. If you go into the negotiation asking for 3.5% many shady loan officers will smile and tell you “Sure, I can get you that refinance rate” while loading you up with discount points and fees.
If you’re not paying attention it’s very easy to pay too much for things like the loan origination fee, administrative fees, mortgage loan processing, underwriting and commitment fees. Many of these are pure garbage and do nothing but boost the lender and broker’s profits at your expense. Some loan officers refuse to waive fees because the lender will take that amount out of their commission. Remember that fees vary from one lender to the next and shopping around can help you pay less at closing.
How to get an honest refinance rate quote
Most lenders quote refinance rates that include discount points. You can find the origination fee and any discount points in section A on Page 2 of your Good Faith Estimate. The third party charges you’ll encounter like title insurance, attorney fees or escrow don’t matter when shopping for refinance rates. These fees are out of your lender’s control and cannot be negotiated. The first fees you need to look at when comparing quotes from today’s best lenders are found in box 1 and 2 of section A.
This is where you’ll find discount points and the loan origination fee along with any Yield Spread Premium. If you’d like a sample of the new Good Faith Estimate to look at you can download one from the HUD website using this link: Sample Good Faith Estimate
Every now and again I get a snotty comment from someone chastising me for talking about Yield Spread Premium. “YSP is illegal now” they’ll say, “You should do your homework.” Fact is that Yield Spread Premium is NOT illegal now and is the first item disclosed in box 2.
The credit or charge for the interest rate of % is included in “Our origination charge.” (See item 1 above.)
The credit they’re talking about here for taking a higher interest rate IS Yield Spread Premium and when present is being used to pay the loan origination fee in box one…but I digress.
Oh by the way, don’t let a pushy loan officer distract you with the “Total Estimated Settlement Charges A+B” on the Good Faith Estimate, you’re interested in section A.
Getting an honest quote for the lowest refinance rates boils down to the type of quotes you’re requesting. Try to get quotes with the same lock period from identical programs with zero points from different lenders. Requesting quotes from identical programs, conventional 30-year fixed to conventional 30-year fixed for example, is the only way to make an apples-to-apples comparison of different refinance rate quotes.
Go hunting for the lowest refinance rates, not fishing
Before you do anything else make sure you choose a program and stick with it. Don’t let a fast talking broker confuse you by quoting refinance rates across different programs. Don’t approach a broker asking for a specific refinance rate, that’s fishing which as you know gets you higher fees. In the end if you’re fishing for the lowest refinance rates the lender will be reeling you in, not the other way around.
Paying for refinance rates is rarely a good idea. What’s the point in getting 4.0% instead of 4.125% if you have to pay thousands of dollars to get there?
Avoid basing your decision on the Annual Percentage Rate alone. APR is simply the most manipulated marketing tool in your lenders arsenal. More often than not the mortgage with the lowest APR comes with the highest out-of-pocket expenses thanks to the way lenders factor in discount points.
Finally, lock your refinance rates smartly. Time is money when it comes to closing and the longer you lock the higher your refinance rates will be. Have a discussion with your loan officer about how long the lender is averaging to close refinancing and factor this into your decision.
Remember those junk fees we talked about for things like processing, rate lock and administrative fees? While you’re having a discussion about the rate lock period is a good time to discuss junk fees as well as the loan origination fee. If your loan officer is unwilling or unable to waive or negotiate to pay less consider taking your business elsewhere.
Sounds simple enough right? Your loan officer is not your friend (unless they really are) so don’t let them confuse you with slick marketing tricks like quoting across different programs with different fees and lock periods.
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