Are you considering taking out a new home loan with today’s low refinance mortgage rates? When deciding if it’s a good idea you’ll want consider the cost of taking out a new mortgage loan. Every new home loan has fees including settlement charges, points and possibly mortgage insurance depending on the program and your loan-to-value ratio. Here are several tips to help you decide if taking out a new home loan is worthwhile and how to get the lowest refinance mortgage rates if you decide to go forward.
Should You Take Advantage of Today’s Refinance Mortgage Rates?
The mortgage fees you pay closing on your new home loan make or break the deal you’re getting, especially when refinancing. If you’re not able to break-even recouping the out-of-pocket expenses from refinancing you’re losing money no matter how low your refinance mortgage rates.
The less you pay at closing the better…that’s why comparison shopping refinance mortgage rates and fees is so important. One of the most common home loan mistakes is focusing only on refinance mortgage rates at the expense of fees. Overpaying the loan origination fee or agreeing to pay discount points for a lower interest rate is a recipe for losing money.
Should I Refinance My Mortgage?
Before you start shopping for the best mortgage lenders you want to decide if refinancing is even worthwhile. You can do this by approximating your break-even point using a simple mortgage calculator like this one.
Simple Mortgage Calculator
The mortgage calculator gives you an idea of how much your payment will go down based on current refinance mortgage rates. Once you’ve got an idea of what the payment will be divide your total estimated closing costs by the amount you’re saving each month. This tells you approximately the number of months it’s going to recoup your out-of-pocket expenses from your monthly savings. If this time-frame for breaking even is acceptable for you than paying for a new home loan makes sense.
Remember that if you’re considering a cash-out refinance that you may be required to purchase mortgage insurance which can add hundreds of dollars to your payment. The same is true if your loan-to-value ratio is less than 80%. Mortgage insurance can quickly turn attractive refinance mortgage rates into a losing proposition.
How to Shop for the Lowest Mortgage Rates & Fees
Comparison shopping refinance mortgage rates and fees from different lenders can be a confusing and frustrating process. In addition to comparing mortgage rates from today’s best mortgage lenders you need to shop closing costs. The trick to comparison shopping is to only compare lender fees from identical mortgage programs. If you’re comparing fees from different programs across different lenders you’re not making an apples-to-apples comparison.
What mortgage fees can you expect to pay? One of the most important is the loan origination fee. This is paid to the person or company arranging your home loan. Many brokers will tell you that one percent is standard for the mortgage origination fee. I’ve reviewed community credit unions that charge as little as $400 for their loan origination fee which is one of the reasons comparison shopping is so important.
Other closing costs to consider include mortgage processing, underwriting fees, attorney fees, title insurance, recording fees and pro-rated taxes and insurance. Fortunately, the new Good Faith Estimate makes it easy to comparison shop mortgage lender fees across identical programs.
How to Use the Good Faith Estimate to Compare Mortgage Fees
The government recently revamped the Good Faith Estimate making it much more useful for refinance rate shoppers. First, when shopping refinance mortgage rates make sure the quotes you’re requesting do not include discount points. You’ll find that lenders like to quote refinance mortgage rates based on paying discount points because it makes their interest rates seem more attractive.
Agreeing to pay discount points used to make sense when home loans came with double digit interest rates in the 1980s. These days refinance mortgage rates are at historically low levels making points a waste of money. If you’re curious how paying this fee to the lender affects your payments there is a table on page three of your Good Faith Estimate; however, most homeowners do not benefit from paying points.
Remember, the less you pay closing on your new home loan, the more you’ll benefit from current refinance mortgage rates. Start with the loan origination fee fount on page two, box 1a. Next, look at any yield spread premium in box 2a. This is a credit generated by accepting higher than market refinance mortgage rates that is used to pay your origination fee and other closing costs. If you’re taking this lender credit you’re not getting the lowest interest rate possible and your monthly payments will be higher.
The next section on your Good Faith Estimate that you want to focus on is box b on page two. This includes lender specific fees, including third party fees that you can shop around for. You’ll find the mortgage fees vary from one lender to the next so don’t be afraid to haggle with loan officers over the fees you find in box b.
What to do if Lender’s Aren’t Quoting You Their Lowest Refinance Rates
If you find the quotes you’re getting are higher than what lenders are advertising the likely culprit assuming that your LTV ratio is better than 80% is your credit score.
Have you been to AnnualCreditReport.com this year to review your credit reports for errors? Mistakes in your credit reports are like a boat anchor for your credit score, keeping you from the lowest interest rates from today’s best mortgage companies.
AnnualCreditReport.com won’t give you a credit score unless you pay for one. CreditKarma.com is an excellent alternative to those fake free credit score sites that bait you into paying for their credit monitoring services.
If you find mistakes in your credit files you’ll need to dispute the errors with each credit bureau (Trans Union, Equifax, & Experian) and allow enough time for the correction to be reflected in your credit score.
Strategies for Refinance Mortgage Rate Shoppping
You already know that comparing refinance rates and fees across identical mortgage programs is the only way to make an apples-to-apples comparison of lender fees. It’s also important to make sure the quotes you’re requesting are accurate and don’t negatively affect your credit score.
When a mortgage lender runs your credit you get a hard inquiry on your credit report which lowers your credit score. Some people refuse to provide their Social Security Number when shopping for refinance mortgage rates because they think they’re protecting their credit score.
If you do this you’re getting the loan officer’s best guess on what refinance rate you’ll qualify. The only way to get an accurate Good Faith Estimate for comparison shopping fees is to give up your Social Security number. The trick is to limit all of your quotes to a 14-day period. If you’ll do this you’ll only get dinged for one hard lender inquiry on your credit report and will protect your credit score as much as possible.
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