Do you feel like you’ve missed the boat on the lowest refinance rates and are asking the question “Should I Refinance now or wait for mortgage rates to go down again?” It’s not unreasonable to question home refinance rates and fees when the so-called experts keep saying that rates have already bottomed out. So if you’re struggling with the question “Should I Refinance” here are several tips to help you and find the best deal while avoiding unnecessary lender fees.
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Should I Refinance My Mortgage?
Refinance mortgage rates started going up several weeks ago. Do you feel like you missed the boat and are hoping they fall again? Recent history suggests when there’s an upturn in mortgage rates they reverse direction, even when the experts claim they’ve bottomed out. Mortgage refinance rates always seem to find a way to spiral lower.
Many financial advisors are saying a downward correction is unlikely to happen this time. The Federal Reserve is planning to cut back spending money to boost the economy’s recovery, which is why refinance rates fell so low. When news about the economy is good the bond market is weak which usually means higher mortgage rates.
The opposite is also true and one thing you can count on in this country is bad economic news, which means lower refinance rates.
What Happens If Refinance Rates Drop After You Lock?
The question “Should I float or lock my mortgage rate” comes up often. Timing mortgage rates is next to impossible for even the most seasoned investors. If you lock and interest rates go up you’re in good shape but if mortgage rates drop lower you’re missing an opportunity to save money.
If you’ve decided to go forward with your home refinance application, you could lock your mortgage rate and ask the loan officer to float your rate down if interest rates drop. You might have to shop around for a lender to agree to this but if you can get it in writing you’ll be able to lock lower mortgage rates should they turn downward.
This is a better strategy than locking your refinance rate and trying to renegotiate for better terms if mortgage rates drop. You could simply walk away from the deal but you risk losing any fees you might have paid with your application.
What Happens If You Walk Away From a Mortgage Application?
By the time you’re talking about locking refinance rates you’ve already submitted a mortgage application and the lender ran your credit. This means you’ll have a hard inquiry from a mortgage lender on your credit report which is a “ding” for your credit score.
As long as you limit your refinance rate quotes to two weeks, (a 14-day period) you’ll only get dinged for one hard inquiry no matter how many lenders run your credit. As long as you time your applications correctly walking away from a mortgage application won’t adversely affect your credit score.
What about rate lock fees? Many lenders charge application fees and rate lock fees. These are considered by many to be junk fees because it doesn’t cost a lender anything to lock your mortgage refinance rates; however, if you walk away from an application there’s a good chance you’ll lose the cash you paid the lender to lock your rate.
Remember it takes several weeks to refinance your mortgage, some banks are even taking as long as six months to fund mortgage refinance loans. Keep in mind that bad economic news usually means lower mortgage rates and in this economy there’s a lot that can go wrong in six months.
Should I Refinance? How to Calculate Your Break Even Point
Are you still wrestling with the question “Should I refinance my mortgage?” Calculating the point where you break even recouping your out-of-pocket expenses could help you with this. It’s not as hard as it sounds, using a simple mortgage calculator like the one below to calculate your new payment amount based on the mortgage refinance rates you’re being quoted.
Simple Mortgage Calculator
Once you’ve got your new payment amount your monthly savings is the difference between the old payment and your new one. Divide your total closing costs found on page two of your Good Faith Estimate by the amount you’re saving each month and you’ve got the number of months it’s going to take you to break even recouping your out-of-pocket expenses.
You should know this is really only an approximation because it doesn’t take into account changes in term-length or taxes but for most people the approximation is good enough to make an informed decision. Are you comfortable with the amount of time it will take you to break even? In this case it probably makes sense paying for a new mortgage loan.
How to Shop Around For Lower Refinance Rates & Fees
One of the most common mortgage mistakes your neighbors make refinancing their homes is focusing on getting the lowest interest rate at the expense of fees. This includes agreeing to pay unnecessary discount points or overpaying the loan origination fee.
Page two of your Good Faith Estimate is an excellent tool for comparison shopping home mortgage refinance rates. Start by shopping for the lowest mortgage origination fee on page two. Many loan officers will tell you that paying one percent is standard for the loan origination fee; however, I’ve reviewed a number of community credit unions that charge as little as $400 for mortgage loan origination.
Remember, the less you pay closing on your new home loan the more benefit you’ll get from lowering your refinance rates with today’s best mortgage lenders.
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