If you’re thinking of taking advantage of today’s best refinance rates to lower your monthly payments there are several things you can do to make sure you’re not overpaying for your next home loan. Most of your neighbors approach mortgage refinance rates shopping by collecting good faith estimates from half a dozen lenders and choose the one with the most attractive offers; however, this approach is why nearly all your neighbors are overpaying. Here are several tips before you refi to help you get the lowest mortgage refinance rates without overpaying.
Mortgage Refinance Rates 101
If you’ve spent any time shopping for mortgage refinance rates you might be frustrated to find that the quotes you get are higher than the mortgage refinance rates you’re seeing advertised. Keep in mind that advertised mortgage refinance rates are not based in reality and your results will vary depending on your credit score and loan-to-value ratio.
Here’s a chart to illustrate how your credit score affects mortgage refinance rates and how much you’ll pay in finance charges over the lifetime of your home loan:
The higher your credit score when shopping for mortgage refinance rates the closer you’ll get to what lenders are advertising. Checking your credit reports for mistakes and avoiding opening new accounts can literally save you thousands as dollars as illustrated above.
What About Discount Points & Lender Fees
Should you pay discount points to lower your interest rate and what about lender junk fees? If you’re having difficulty qualifying for mortgage refinancing, paying discount points could get you in the ballpark of what you’re seeing advertised; however, whether you can justify the cost depends on how long it’s going to take you to recoup the fees you pay from your lower payment amount. The more you pay in lender fees, closing costs, and discount points, the longer it’s going to take to break even and realize a benefit from your new home loan.
You can easily determine if it’s worth it by figuring out what your new mortgage payment will be and how much lower it is from your old payment. This is what you’re saving each month based on the lower mortgage refinance rates. Once you know how much your mortgage refi will cost you, divide this amount by how much you’re saving each month and you’ll know the number of months it’s going to break even on your out-of-pocket expenses. If you’re ok with how long it’s going to take you to break even then you should be able to justify the expense.
Avoiding Unnecessary Mortgage Refinance Fees
You can cut the amount of time it takes to break even on your mortgage refi by avoiding lender and broker junk fees. Mortgage rate lock fees, loan processing fees, and broker courier fees are all junk fees you’ll want to avoid paying. One of the most common mortgage mistakes is overpaying the loan origination fee. Keep in mind while rate shopping that a reasonable amount to pay for your loan origination fee is one percent of your mortgage amount.
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You can learn more about paying less for your mortgage refinance by avoiding unnecessary fees and markup by checking out my free Underground Mortgage Refinancing Videos.
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