The first tip that I have for you is to do your due diligence by shopping around. Don't automatically go sign up with the first office you visit unless you've at least talked with a couple of other loan officers and know that the first one you visit is the best. Several mortgage companies now have a lot of valuable information on the internet and finding their websites can be relatively easy to do. This will help you do some priliminary research before you decide to go with one company over another. Getting several quotes will at least give you a better idea of what a good rate is. Be cautious of the traditional bait and switch where a company will get you in the door with a low rate only to have a lot of additional fees and "points". Make sure you're comparing apples to apples and get the entire cost, not just the APR.
Most lenders will have a prepayment penalty. This second tip is to make sure you know what the prepayment penalty is on your current loan before you spend the time shopping for a new lender. If you have a large prepayment, it may offset any benefit from the refinance. You may still end up with a lower rate, but knowing if you have a prepayment penalty and what it is should be a priority. Most lenders typically have a 120 to 180 day prepayment penalty. This insures that even if you refinance after only 120 days, they'll still have had an opportunity to cover their costs and make some profit while they've held onto the loan. Some lenders do have a 90 day prepayment policy. This information is great to know also both from your existing provider as well as the lender you're about to sign with so that you know when you can next refinance in the event that rates are good or there is another cause for refinancing.
This third tip can save you significant money, especially in the long run. There are two types of homeowners, at least two types I'll categorize here. The first is the temporary homeowner. Whether this is a first time homebuyer that may only be in the home for a year or two, or someone who will most likely move or relocate well before the mortgage is paid off. The other is the "lifer". This is the homeowner that is in their home for the long haul and isn't going anywhere. Both of these types of homeowners can refinance and most do based on lowering rates, cash out refinances, and other reasons. The goal of the "lifer" apart from taking cash out of their home in an cash-out refinance to get at the equity of the home, is usually to get their rates as low as possible. The lower the rate, the less they'll pay in the long run. This may mean that if they "buy down" their rate where they pay cash up front in exchange for a lower rate may be a good idea as the savings over the life of the loan will be significant. The temporary homeowner instead of trying to buy down the rate may consider it a better option to pay as little as possible up front to affect less their overall cash flow or access to cash. The best thing to do is find a good loan officer who can take your individual scenario and give you several options including the monthly costs and one time fees of each option.
Also, if you don't know how long you're going to be in a home, whether there for a shorter amount of time, or have plans to "upgrade" to a new neighborhood within a few years, buying down the rate may not be the very best option. You may have more success financially if you focus on keeping your monthly cash outlay to a minimum and reduce the amount of capital required to close the loan. There are many good loan officers that will help you determine which program is the best for you. For instance, if you spend $3,000 to buy down the rate from a 5% to a 4.5%, you may save $30,000 over the life of the loan if, and only if, you keep that loan for the full 30 years (assuming a 30 year fixed mortgage). There is a break even where when you spend $3000, your break even may be 3 years or 4 years. A point in time when the buy down of the rate ends up being a better value to you than if you were to not buy down the rate at all. The same may be true for paying a higher rate to cover all of the closing costs through a no-cost refinance. Evaluate this with a good loan officer and you'll have an idea about what would be the best thing to do with your loan officer.
The fourth tip is to reserve the credit check for the loan officer and broker you decide to go with. This shouldn't matter too much as the credit bureaus made some changes with how multiple inquiries within the same period of time affects overall credit score. The answer is that the credit adjusts as if it were only one inquiry. Also, to keep an eye on your own credit, you have the option to get a free credit report from each agency once per year. What this means is that if you request your credit report every 4 months, you'll have a good chance of seeing not only what is on it, but your score as well. The three agencies are Experian, TransUnion, and Equifax.
The fifth tip is to work with a loan officer that isn't going to "rip you off" when it comes to the backend payouts that the loan officer receives from the bank. This payout is called Yield Spread Premium (YSP). As an example, if the loan officer sells the rate for 1% higher than the par rate or the rate the lender is offering, then there may be a payout of a certain percentage of the loan amount paid to the loan officer broker. The loan officer or mortgage office will use this YSP to cover things like the loan origination fees, the appraisal, and any other misc. fees that are typically associated with a refinance. This is not a bad thing especially if you know about it. What happens too often is that the loan officer knows that you the borrower don't know anything about this YSP and so will increase the rate by more than is really ethical or moral. Don't be afraid to ask your loan officer what they are making on the loan. This is the same as asking what a loan origination fee should be. You may get a feel with this one question how honest and trustworthy your loan officer is. Also, the fact that present your awareness of the YSP to the loan officer will usually be an indication that you know enough about loans that you aren't a customer to be taken advantage of. This often may be enough and alone this tip may save you thousands over the life of the loan.
In conclusion, knowing about these few simple tips may save you thousands of dollars both on the overall cost of your home as it relates to the overall amount of interest you'll pay or even to help you determine whether or not you should try to get a no-cost refinance and pay a higher rate or whether you should try to pay down the interest rate. The real key is to find a good loan officer you can trust. Use some of these tips to get a good feeling that who you are working with is reiiable and trustworthy. Failure to know about these easy tips could cost you thousands of dollars when you refinance.
Article Source: http://www.avidarticles.com
