Mortgage refinancing can be a stressful time for many homeowners. Doing your homework and researching mortgage lenders will save you thousands of dollars on your next loan. When comparison shopping for a new mortgage there are several questions you need to ask when screening potential mortgage companies or brokers. Here are four questions to ask prior to mortgage refinancing that will help you avoid overpaying for your next mortgage loan.
I. The first is not a question; however, you need to inform the mortgage company or broker that you will pay 1-1.5% for origination fees and you will pay closing costs; however, you will not pay Yield Spread Premium or any retail markup of your mortgage interest rate.
II. Can you lock in my mortgage interest rate?
Your interest rate guarantee is important because you will need enough time to close on the new mortgage before your guarantee expires. Some mortgage lenders charge for the guarantee and this fee may or may not be refundable if you decide not to choose that lender.
III. Does the mortgage have a prepayment penalty?
Mortgage lenders use prepayment penalties to discourage refinancing. These penalties are frequently steep and could cost you as much as six months worth of interest on 85% of your original loan amount. Try and negotiate with your mortgage lender to remove the penalty from your loan contract; if you are a homeowner with good credit there is no reason to accept a mortgage that includes a penalty for early repayment.
IV. How much will the closing costs be and how long will it take to close?
Closing costs vary from one mortgage lender to the next so it is important to comparison shop for the most competitive loan offer. You can expect closing costs to run near 1-1.5% of your loan amount. It is important to find out how long it will take to close to ensure you have enough time to close on the new mortgage loan. If your interest rate guarantee expires prior to closing your lender could raise the interest rate and charge you more.
You can learn more about your mortgage refinancing options, including costly homeowner mistakes you need to avoid by registering for our free mortgage guide: “Mortgage Refinancing: What You Need to Know.”