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Mortgage Refinancing: Questions You Need to Ask the Lender

When you are shopping for a new mortgage loan there are a number of questions that will help you find the best mortgage loan. Here is a list of questions that will help you comparison shop for the best loan when refinancing your mortgage.

What is the Actual Interest Rate?

This question is not as obvious as it sounds. Many mortgage lenders disguise the interest rates in their loan offers with introductory interest rates that are significantly lower than the actual interest rate. A good starting point when comparing loan offers is the Annual Percentage Rate (APR); however, use the Good Faith Estimate to compare interest rates, fees, and closing costs whenever possible.

Will the Interest Rate Change, and How Often?

If you have an Adjustable Rate Mortgage it is important to know how often the lender will adjust interest. Find out what index your Adjustable Rate Mortgage interest rate is tied to and what the lender’s markup will be.

Do I Have to Pay Points?

Mortgage lenders may require you to pay points in order to qualify for the loan. One point is one percent of the principal balance you pay at closing. Your lender may also charge origination points as a processing fee for working on your mortgage application.

What are the Closing Costs?

Many homeowners make the mistake of not comparing closing costs when shopping for a mortgage loan. If you neglect to comparison shop for closing costs you could overpay thousands of dollars when you close on the mortgage. Use the Good Faith Estimate from each lender to compare closing costs and do not be afraid to haggle with the lender for more competitive closing costs.

How Long Will the Mortgage Lender Guarantee the Interest Rate?

If the lender will lock-in your interest rate and points this is done for a fixed period of time. You will need to close on the mortgage before the lock period expires or the lender can raise your interest rate. Lock periods are typically 30-60 days; however, interest rate lock periods can vary by mortgage lender. Make sure you get this guarantee in writing before committing to a mortgage lender.

What Documentation is Required?

You need to know the answer to this question in order to organize your effort before applying. You need to close on the new mortgage in a timely manner; failing to produce the necessary documentation could delay your closing on the mortgage. If you fail to close before the interest rate lock expires you could lose your ideal interest rate.

Is There a Prepayment Penalty?

Mortgage lenders charge prepayment penalties when you refinance or sell your home. If you have good credit there is no reason to accept a mortgage offer that comes with a prepayment penalty. If your lender insists on this penalty in the loan contract take your business to another lender.

How Long Will Closing Take?

Mortgage refinancing can be a time consuming process. It is important to close on the new mortgage before the lender’s guarantee expires. If you are unable to close the lender could change your loan terms or charge you a higher interest rate. To learn more about mortgage refinancing and how to avoid common mortgagee mistakes, register for our free mortgage guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage.”

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