Are you still on the fence about mortgage refinancing and are searching for the lowest mortgage rates today? There are several things you should know about the mortgage refinance quotes you get from lenders like Amerisave before jumping in to your next home loan. Here are several tips before you refi to help you avoid paying unnecessary fees like discount points when shopping for the lowest mortgage rates today.
Finding the Lowest Mortgage Rates Today
Most people approach shopping for refinance mortgage rates the same way they shop for a kitchen appliance. Collect a few Good Faith Estimates from lenders like Wells Fargo Refinance, look at USAA Mortgage Rates and try and pick the one with the best quote. The problem is most homeowners don’t know which one is better, and with good reason.
The problem with mortgage rate shopping using the Good Faith Estimate is that there are no standards enforced from one lender to the next. Truth-in-Lending laws require that you get an estimate of fees and refinancing rates, given in “good-faith.” Lack of standards means it’s virtually impossible to make an apples-to-apples comparison of refinance offers from one lender to the next. Not to mention the Good Faith Estimate has become little more than a marketing tool used by lenders to sell overpriced home loans.
Common Mortgage Mistakes Cost Thousands
One of the most common mistakes when shopping for mortgage rates today is focusing on getting the lowest possible quote at the expense of fees. The problem with this approach is that lenders frequently quote discount points to make their rate quotes seem more attractive. If you find a quote on Lending Tree for example that’s much lower than others you’re seeing online, check the fine print. Chances are you’ll be required to pay discount points to qualify.
What Are Mortgage Discount Points?
For the uninitiated, mortgage points are a way of buying down your refinance rates and are frequently used by lenders to manipulate their quotes. One discount point is one percent of your home loan paid by you at closing and lowers your refinance mortgage rate by .25 percent.
The problem with buying down your rate when mortgage refinancing is, in addition to cash out of your pocket for points, you’ll also be required to pay a loan origination fee and various other lender fees to close. The more you pay closing on your refi the less cash you’re going to have at the end of the day AND the longer it’s going to take break even recouping your out-of-pocket expenses.
Why should you care about recouping closing costs? Lowering my payment is all that matters right?
Recouping your closing costs is one of the most important aspects of mortgage refinancing because if you don’t you’re actually losing money no matter how low your interest rate. The more you pay for things like discount points, the mortgage loan origination fee and lender junk fees the more difficult it becomes, even impossible, to break even recouping your expenses.
How do you recoup closing costs you ask? Assuming your goal for refinancing is to lower your payment amount, this is where you get back your closing costs. Here’s an example to illustrate how breaking even on your mortgage refi works.
Suppose you’re refinancing your home for $250,000. Your old payment was based on paying a six percent mortgage rate and you paid $1,498 per month. Refinancing will get you an interest rate of 5.25 percent at a cost of half a point, and a loan origination fee of 2 percent. (In this example we’ll only focus on the discount points and origination fee as these are the most commonly overpaid)
Closing on this home loan will cost you $1,250 in points, (.5 discount points) plus $5,000 for the mortgage loan origination fee for a total of $6,250. Your new payment based on the lower interest rate will be $1,419 for a monthly savings of $79 per month. You can calculate how long it’s going to break even recouping these expenses by dividing your total closing cost by the $79 you’re saving each month.
In this example it will take you 80 months ($6,250 divided by $79 = 79.11) to break even, which is just over six years. If you refinance or sell your home before then you’ll never recoup those out of pocket expenses meaning you’re losing money on the deal.
Beware Unnecessary Lender Fees
There are other costs to consider besides discount points and the loan origination fee to consider. Any fees you agree to pay when refinancing boost your out-of-pocket expenses, including junk fees, making it more difficult, even impossible to break even.
Common junk fees you’ll want to keep an eye out for include application fees, rate lock fees, broker courier fees, and anything resembling a third-party loan processing fee. Also, make sure you’re negotiating that loan origination fee. Paying one percent of your home loan to the broker for loan origination is more than reasonable compensation for the person arranging your home loan. Focus on keeping your costs down and you’ll benefit more from mortgage refinancing than your neighbors that focused on getting the lowest refinance rates at all cost.
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