Refinancing a home mortgage is one of the most fun things I can think of
to do when bored…NOT. Based on my experience,
here’s what I suggest you do if considering engaging in this activity, which
offers exciting opportunities to screw up,
frightening roller coaster ride like anticipation and a degree to understand
(unless you found a book written at the fifth grade level…for ADULTS, what a
concept):
1.
Go
to the following web address: http://www.federalreserve.gov/pubs/refinancings/default.htm
where you can find basic information on refinancing, mortgage calculators, guidance
on how to determine when you will break even and things to look for and guard
against…FREE.
a.
This
is a government website, not commercial - so the objective is not to sell you a
product, but to edumacate you.
2.
Find
your current mortgage papers; note the rate you pay now. Write it down.
a.
Verify
whether or not you have a prepayment penalty.
b.
Check
with your current lender to see if they will offer you a good rate. If you do have a prepayment penalty, ask under
what circumstances will they waive it.
i.
If
so, how does that affect costs? If they
waive the penalty but charge you a rate that is higher than you can get
elsewhere, is it worth it?
1.
Use
a mortgage calculator to determine the best plan. (See #1.)
3.
Shop
for best rates. Get written Good
Faith Estimates from at least three lenders. You can line up what each is offering, side
by side, so you see the differences in costs and rates.
a.
Beware
of lenders who do not give you a Good Faith Estimate, it is against the law not
to do so.
i.
If
they tell you it’s confusing, just say, “I’m not an idiot, ha, ha.”
b.
Just
getting a one page estimated expense sheet will not help. Lenders, be they bankers, brokers, or loan
officers, speak in different languages and differ in their terminology. They will confuse you without trying to do so.
c.
NOTE:
the APR is the interest, AFTER the costs are added in; it is different from the
interest rate, contrary to what a recent mortgage broker tried to tell me.
4.
If
you want to, or if you have savvy friends, ask about their experiences; just
beware that you still need to look at your own situation and compare costs.
5.
Don’t
let anyone push you, rush you…and try sales techniques geared to make you sign
on the bottom line NOW. The money is
there today, tomorrow and next week. Right now (January 2012), the rates are
not fluctuating wildly or by much at all.
Refinancing isn’t a good idea if you’ve had your home a long time. In the later years of paying your mortgage,
more of your money is going to the actual home payment and less to interest. If you refinance at that point, it’s like
starting all over again with interest payments.
Also, if your current mortgage has a prepayment penalty, it will take
you a longer time to break even on refinancing fees when you look at the costs
opposed to the expected monthly sayings.
Finally, if you plan to move in the next few years, you need to
calculate whether you will gain back the costs of refinancing before you leave
your home and purchase another one.
That’s it in a blurb. You will
survive the tedium. Just be a good consumer;
know your rights and where to go for information that is unbiased.
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