Mortgage Refinancing Tips

There are many good reasons why someone may wish to refinance their mortgage loan.  One reason to consider refinancing could be the incentive to switch from an adjustable rate product to a fixed rate loan.  Another reason is that borrowers may wish to use a "cash out" refinance loan that allows the homeowner to access the equity in their home to use for various purposes (like paying off credit cards or funding a college education.)

Of course the most common reason for mortgage refinancing has to do with interest rates.  Mortgages interest rates always fluctuate up and down, and when rates are lower than your current rate it is always worth consideration.  You will need to determine the upfront refinance costs versus the savings of the lower rate.  You will also need to think about how long you will own the property.  If you might sell within the next couple of years it will probably not be worth refinancing unless you can secure an interest that will be much lower than your current loan.

Ads for refinancing programs call them “low cost” or “no cost” loans even though there are various costs the borrower must pay to refinance. In fact, some mortgages carry a Prepayment Penalty that must be paid when the loan is paid off prior to its expiration date.   If you should decide to refinance, these are some of the fees you may encounter:

•    Application Fee – This is a fee charged by the lender to process the loan application.

•    Appraisal Fee -   This covers a report made by an appraiser to determine the current value of your house which is based upon the square footage of your home and the land as well as the amenities.   This report also covers a comparison of your property to other homes in the neighborhood that are similar to yours.

•    Credit Report – A necessary report to show the lender your current FICO score which is based on your credit history.

•    Survey – This survey of your property defines the boundaries of the land upon which your house is located.

•    Loan Origination Fee – This is a fee the lender charges the borrower to underwrite the loan and is usually a number of points based on the total amount of the mortgage.

•    Discount Points – One point equals 1% of the total amount of the loan.    Points paid up front help the borrower obtain a lower interest rate.

•    Private Mortgage Insurance (PMI) – The lender requires PMI in addition to the monthly mortgage payment if the borrower was unable to make a down payment of at least 20%.  This is no longer required once 20% of the loan is paid off.

For help with mortgage refinancing we recommend Max Leaman at Prime Lending.  He can be reached at 512-617-5626 or at maxleaman@aol.com.