Refinancing a Mortgage Without Losing Your Shirt

Are you thinking about refinancing a mortgage but want to avoid paying unnecessary fees or lender markup? One of the most common mortgage mistakes is focusing on getting the lowest refinance mortgage rates from lenders like Amerisave at the expense of closing costs. Unnecessary fees and markup when refinancing a mortgage makes it difficult (if not impossible) to recoup your expenses, making your new home loan a losing proposition. Here are several tips before you refi to help you get the best refinance mortgage rates without paying lender junk fees.

Refinancing a Mortgage Online

The Internet is an excellent tool for getting quotes for refinancing a mortgage loan; however, there is a lot of bad advice online that could cost you thousands of dollars. One example of terrible advice commonly given by financial advisors is the two percent rule of refinancing a mortgage. This archaic “rule” states that you should never consider refinancing a mortgage unless the new interest rate is at least two percent lower than your old rate. This is bad advice because there are many perfectly good reasons for refinancing a mortgage that don’t always lower your payment amount. Also, it is possible to recoup your out-of-pocket expenses refinancing a mortgage with less than a two percent decrease in your interest rate.

Rather than basing your decision for refinancing a mortgage on some financial advisor’s bad advice, it makes more sense to test your options on a cost/savings basis. You can do this for yourself by determining how much you’ll save each month based on your new payment amount. The difference between your new mortgage payment and old payment is your savings. Assuming you’re refinancing a mortgage to lower your payment, subtract your new payment from the old and you’ve got your savings.

How Much Will Mortgage Refinancing Cost You?

Every home loan has fees that need to be paid at closing. Those no fee refinance offers aren’t really free, you’re simply accepting a higher mortgage rate with prepayment penalties in exchange for the lender paying your closing costs. You can also expect to pay a mortgage origination fee to the broker or company arranging your new home loan. The best place to find out how much a new home loan will cost you is with the HUD-1 Settlement Statement. Don’t rely on the Good Faith Estimate to compare lender fees as this is little more than a marketing tool used by lenders to market their loan offers. The last word on fees, including the loan origination fee is on your HUD-1.

Don’t be afraid to question anything you find on your HUD-1 statement. Did you know that all of your out-of-pocket expenses are negotiable and vary among lenders like Amerisave and Wells Fargo Refinance? Spend a little time being that difficult homeowner haggling over fees and you can quickly save yourself hundreds, even a thousand dollars out-of-pocket at closing.

When Does Refinancing a Mortgage Make Sense?

Once you know how much mortgage refinancing will cost you and have negotiated that amount down as much as your lender is willing to go you’re ready to calculate how long it’s going to take to recoup your out-of-pocket expenses. Simply divide your total closing costs by the amount you’re saving each month and you’ll have the number of months it’s going to take you to break even recouping your closing costs. If this timeframe for recovery is acceptable to you then it probably makes sense in your situation. When making this decision bear in mind that the average homeowner refinances every 4-5 years.