Are you shopping for the lowest mortgage rates for your home loan but want to avoid paying unnecessary fees? Should you stick with a big lender like SunTrust Mortgage Rates or shop more from the best mortgage lenders? Did you know that the single most important aspect of your home loan in today’s market isn’t the mortgage rates? Here are several tips to help you get the best deal on your next home loan without walking away from cash on the table.
It’s All About The Fees…
If you’re in the market for mortgage refinancing and are shopping for the lowest mortgage rates you might want to reconsider your approach. If you really want lower refinance mortgage rates than your neighbors got, it’s not hard to do…if you’re willing to pay. Most homeowners focus so much on getting the lowest mortgage rates they lose sight of their closing costs and wind up paying too much for things like unnecessary discount points.
Remember discount points from when you purchased your home? Most people pay a point or two when buying their home because they simply don’t know better. Mortgage rates are hovering near sixty-year lows so paying discount points is not only unnecessary it’s a waste of your money!
Most lenders, even some credit unions like NFCU mortgage rates post tables that include discount points for no other reason that boosting their income. (at your expense) If you agree to pay discount points in exchange for lower refinance rates your out-of-pocket expenses will be higher and you’ll be gaining less benefit from today’s low mortgage rates.
Why Closing Costs Matter
Aside from the fact that closing costs are draining cash out of your pocket that you could be using for anything else, overpaying lender fees makes mortgage refinancing a losing proposition. The reason is that you must recoup these out-of-pocket expenses like the origination fee before benefiting from your new home loan. If you sell or refinance again before breaking even you’re losing money no matter how low your interest rate.
How to Approximate Your Break-Even Point
You can approximate the amount of time it’s going to take to recoup your closing costs by dividing your total out-of-pocket expenses by the amount your payment is going down each month. I say approximate because this method doesn’t take in to consideration any changes in your home loan’s term-length. Term-length is the amount of time you have to repay the mortgage (most people choose 30 years without considering the benefits of a 15-year home loan) and along with mortgage rates determines your payment amount.
If you shorten your term-length, say going from a 30-year fixed rate to a 15-year fixed rate home loan you’ll break even much more quickly than the calculation allows. Conversely, if you extend your term length say going from 15-years to 30 or worse yet 40 years, the calculation is no longer valid because you’re never going to break even.
Bottom line for today: the less you pay for mortgage refinancing the better off you’ll be. You can learn more about getting the best deal on your next home loan by checking out my free Underground Mortgage Videos.