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When interest rates are at low levels, refinancing becomes a popular choice for many American homeowners. The process has many benefits. It allows people to take advantage of lower interest rates, lower their monthly payments, be mortgage free sooner, borrow for a major purchase or pay off high-interest debt. Others chose refinancing because it allows them to stop paying private mortgage insurance payments or to withdraw funds for much-needed home repairs or renovations.
If you are thinking about refinancing your mortgage, you may want to start by speaking with your existing lender. Your current lender can provide a wealth of information and is likely to offer a very competitive interest rate, as much as three-quarters of a percent lower that most banks (provided your credit rating is good). Many lenders will waive appraisal and closing costs for good customers, a considerable gesture when you consider that refinancing fees can range from $4,500 to $10,000. Once you have spoken to your existing lender, make sure you check out other lenders as well. Use extra caution and check out everything very carefully.
Although most lenders are reputable, there are some ready to make a fast buck at your expense. Watch for suspicious tactics including:
- Promising interest rates below those of all other lenders. (Be suspicious if someone quotes 6% while all other lenders quote 7%. Although lenders will offer deals, it is highly unlikely they will differ to that degree).
- Announcing at closing that the interest rate they “guaranteed” has expired. The new rate – surprise, surprise – is one to three points higher.
- Being vague about closing costs and then springing outrageously exaggerated costs on you at closing. Refinance costs generally average 3 to 6% of the outstanding principal plus any prepayment penalties and the costs of paying off any second mortgages that may exist. Anything more is gouging.
- Promising a low interest rate they never deliver.
- Stating that there are no refinancing charges. There is no such thing as a no-cost refinance. If someone makes this offer it is likely they will simply hide their costs in a higher interest rate or spring the “surprise” costs on you at closing.
Be particularly weary of any lender who:
- Will not give you copies of documents you have signed.
- Requests that you to sign blank forms to “speed up the process.”
- Encourages you to falsify or exaggerate your application information.
- Suggests and encourages you to borrow more than you need.
- Pushes you to agree to payment terms you can't afford.
- Fails to give you the required disclosures.
By taking extra care during the initial phase of your refinancing research, you will save yourself not only dollars, but a lot of headaches. Since the home and its mortgage are normally major factors in a family’s finances it is worth your while to make the extra effort to secure the best mortgage you can, at the most favorable terms.
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