If you’ve been following mortgage refinance rates from the sidelines because you’re not sure if you’ll qualify, it’s not too late to take advantage and slash hundreds of dollars from your payments. There are several things you should know about the refinance rates quotes you’ll receive when shopping for your mortgage refinance that will help you avoid common mortgage mistakes. Here are several of my best tips before you refi to help you avoid paying too much for your next home loan.
The average rate for conforming 30 year fixed rate mortgages eased by a single basis point (0.01 percent) to 4.31 percent. Conforming 5/1 hybrid ARM rates fell by 5 basis points, closing the Wednesday to Tuesday wrap around weekly survey at an average rate of 3.11 percent.
Mortgage Refinance Rate Shopping Online
The Internet is an excellent resource for mortgage rate shopping; however, you might be frustrated to find that the quotes you’re receiving are higher than the lowest refinance rates lenders are advertising. This is because the mortgage refinance rates you’ll receive is based on your credit score and loan-to-value ratio; if the rates you’re being quoted are higher than what you’re seeing online the culprit is probably your FICO score.
Check Your FICO Score Before Refinancing
The graph below illustrates how mortgage refinance rates vary based on average credit scores. You can easily see the correlation between low FICO scores and higher mortgage rates, driving up the cost of your home loan over time. Fortunately, it’s relatively simple to make sure your credit isn’t keeping you from today’s lowest refinance rates. Congress passed a law several years ago requiring the credit bureaus to give you a free copy of your credit report every year.
It’s a good idea to visit the website annualcreditreport.com on a yearly basis, print out all three of your credit reports, and carefully check for mistakes. I say print out all three (Equifax, TransUnion, and Experian) because these agencies are prone to errors and don’t always share information. If you find mistakes in your credit reports there is a procedure for disputing errors.
What About Lender Junk Fees?
One of the most common mortgage mistakes homeowners make when refinancing is focusing only on getting the lowest refinance rates at the expense of fees. Did you know that your closing costs and loan origination fees are negotiable and vary widely from one lender and broker to the next? And what about that mortgage loan origination fee? What’s a reasonable amount to pay the person arranging your mortgage refi?
The broker’s origination fee is a common cause of overpaying for any mortgage refi; however, a reasonable amount to pay the person arranging your new home loan is one percent of the loan amount. The broker fee is negotiable and while many brokers will quote you a fee higher than one percent, it’s not necessary to pay more. Don’t be afraid to haggle with prospective mortgage brokers over their fee.
As for junk fees there are a number of unnecessary closing costs (think rate lock fee) that do nothing but drive up your out-of-pocket expenses, making it difficult if not impossible to recoup your closing costs. The goal of mortgage refinancing is to save money right? How good of a deal you’re getting depends on the fees you’re paying and how long it’s going to recoup those fees from your lower payment amount.
You can quickly calculate how long it’s going to take to recoup your closing costs by adding up everything you’ll have to pay closing on your new home loan and dividing by the amount you’ll be saving each month. Here’s an example to illustrate how this works:
Suppose you’re refinancing your home for $250,000 at 4.5%. Your new mortgage payment on a 30-year, fixed mortgage will be $1,266. Your old payment based on a 6.5% interest rate was $1580, which represents a savings of ($1580-$1266=) $314 per month. It’s going to cost you $6,000 to refinance, so dividing your out-of-pocket costs by your savings ($6,000/314=) 19 months. This is the amount of time it’s going to take you to recoup that $6000 based on saving $314. (Which in this case is a really good deal) Your results will vary; however, it’s not uncommon for it to take five years or longer to recoup your closing costs. Don’t be frustrated if your mortgage refi results are not as favorable.
You can improve your results by negotiating to pay lower fees at closing while avoiding the junk. You don’t have to be a personal finance guru to pull this off; my free Underground Mortgage Videos have everything you need to slash hundreds, if not thousands of dollars from your out-of-pocket expenses.
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You can learn more about taking advantage of historically low refinance rates while avoiding unnecessary lender fees and common mortgage mistakes by checking out my free Underground Mortgage Videos.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
