Things to Be Aware of When Refinancing Your Home
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With mortgage interest rates nice and low, it is no surprise that many home owners are considering refinancing. However, as always, there are some things that smart consumers need to be aware of before they sign any papers. Here are 3 things to consider when financing your home:
- Don’t avoid applying to refinance because of equity. It is true that many mortgage lenders are reluctant to refinance homes that have less than 20% equity. Many require a loan to value ratio of 80% or less. However, if your home mortgage loan is serviced by Fannie or Freddie, you might be able to take advantage of Making Home Affordable. And that means that you could end up getting a refinance even if your loan to value ratio is up to 125%.
- Look at more than just application costs. Just because a mortgage lender claims it has no application costs, doesn’t mean it’s the best deal. There may be other closing fees, or you may have to pay more points or higher interest as a result. Make sure you are comparing apples to apples with loans. Make sure you look at combinations of points and interest rates. Consumers Union offers this on comparing point/interest rates: “When faced with the need to compare different rate/point combinations among lenders, consumers should first convert each quoted rate to one based on a constant number of points and then find the lender with the lowest rate. In making this conversion, consumers should use a traditional rule of thumb that equates each point to a 1/4 of 1 percent change in the interest rate. This would make an 8 percent loan with 0 points equivalent to a 7.75 percent loan with 1 point.” Make sure you add up costs and interest charges together to find the best deal.
- Understand that you can reject the deal. You have three days from closing to reject a deal. If you have second thoughts about the deal you got, notify the mortgage lender in writing, within three days, and you can rescind. The lender then has 20 days to refund your fees.
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