How to Beat Your Bank Getting The Best Refinance Rates

No one likes paying too much for anything and mortgage refinancing is no exception. One of the most common mortgage mistakes made by nearly all of your neighbors is focusing only on getting the best refinance rates. This strategy almost always results in paying too much at closing making it difficult, even impossible to recoup your closing costs. Here’s a proven strategy for getting the lowest refinance rates without paying unnecessary fees or discount points.

How Banks Make Money From Mortgage Refinancing

Did you know many banks and lenders have nothing to do with you once your mortgage closes? You would think banks make money by collecting interest from your payments but really this isn’t the case. Most lenders don’t service their own home loans and simply sell them to investors after closing for an upfront profit.

So how does your bank make money from refinancing your home? The fees you pay closing on your new home loan including unnecessary discount points are pure profit for mortgage lenders. In fact, the more you pay at closing the less benefit you’re getting from the best refinance rates.

Discount Points Benefit Your Banker…Not You

If you spend any amount of time shopping for refinance rates you’ll find lenders quote interest rates with varying amounts of discount points. This is a fee you pay at closing to buy down your refinance rates. Points raise your out-of-pocket expenses meaning it’s going to take you longer to break even recouping your closing costs. Pay too much and you could find that you never break even.

Discount points are a relic of the 1980s when double-digit interest rates made paying the fee worthwhile. Paying one percent of your loan amount would buy down your refinance rates by .25% which you could quickly recoup because interest rates were so high.

Today refinance rates are near historically low levels so paying that one percent fee only benefits your banker. Why do lenders quote refinance rates that include discount points? They’re banking on the fact that your neighbors don’t know better and will pay this unnecessary fee.

Make sure your refinance rate shopping is based on zero point quotes if you want the best deal for your next home loan.

What About No Fee Mortgage Refinancing?

You’ve seen the ads on television to get your home refinanced without paying anything out-of-pocket. Are these offers too good to be true?

The problem with no fee refinancing isn’t what you’re paying at closing but what you’re giving up in exchange. Lenders mark up their refinance rates to cover the loan origination fee and other closing costs.

There’s no such thing as a no-fee mortgage loan; these no fee refinance offers trade higher interest rates for fees which gets you a larger monthly payment.

How to Shop for the Best Refinance Rates

I’ve already mentioned that zero point offers are necessary when shopping for the best refinance rates…but don’t stop there. You want to compare offers from multiple lenders paying attention to the fees found in section 800 of the Good Faith Estimate. Don’t rely on the Annual Percentage Rate to factor in fees when comparison shopping.

Annual Percentage Rate or APR is the most manipulated marketing propaganda you’ll find when shopping for a home loan. More often than not the mortgage with the lowest APR has the highest closing costs. Never choose refinance rates based on the mortgage with the lowest APR.

Mortgage junk fees include the application fee, rate lock fee and processing fees. Your loan origination fee can be negotiated…the less you pay the better.

Don’t be afraid to question the fees found on your Good Faith Estimate. If you don’t like the answers you’re getting or a dealing with a pushy loan officer simply take your business elsewhere.