If you are paying attention to mortgage rates, you’re probably wondering whether you can get a better deal with a refinance. But if you’re new at this, like I was just a few months ago, you’re probably also wondering how in the world to figure out who’s got the best deal. Here are some tips on what you’ll need to look at.
As you’re getting quotes, you’ll want to compare all of the following very carefully, as these are the main variable fees from one lender to another.
- Interest rates: Find out whether the rate you’re quoted requires you to pay points. My policy is never to pay points, as it takes too long to recoup the cost for my taste.
- Origination charges or other lender’s fees: Most lenders will have a fee somewhere from $500 to $1,000. But depending on how their policies work, the pricing I mentioned above can reduce the fee to essentially nothing. My last refinance origination charge was only $12.
- Lender’s credit to you: A lender’s credit will go toward your closing costs, so it’s important to find out whether you’re getting any and how much it is. My credit for my last refinance was around $3,000, meaning the only money I took to closing was for escrow, and most of that was refunded by my previous lender from the amount I had saved in my previous escrow account.
Otherwise, costs that usually do not depend on the lender, but could, are:
- Title charges: The lender can’t force you to use a particular company, but in some cases their affiliate might be able to give you a better rate than you can get on your own. Compare quotes independently to find the best deal. Also, if you can prove you bought an owner’s title insurance policy on your original loan, you can get a lower reissue rate for the lender’s title insurance. Ask the title companies what the breakdown between their own fees and the title insurance fees is, as that’s the only way to accurately compare — the insurance fees should be the same from one company to another, while the other fees will vary.
- Appraisal: An FHA appraisal ran at $450 when I did it in April. But one lender would allow an FHA streamline refinance without an appraisal, saving me $450. The other lender required an appraisal, but had a better interest rate.
Other costs to be aware of, but that aren’t dependent on the lender:
- Mortgage insurance: FHA requires an up-front mortgage insurance premium, as well as ongoing mortgage insurance for at least five years. Conventional loans with less than 20% equity generally will require some form of mortgage insurance as well, but you might be able to cancel it sooner than with an FHA loan, dropping your monthly payment by the amount of the premium.
- Government fees, etc.: Every loan has a few fees attached to it. For my refinance, these were negligible — about $75.
- Escrow: Beyond mortgage insurance, there also are taxes, homeowner’s insurance and other potential costs depending on where your property is. While you will have to make an initial escrow deposit with your new loan, keep in mind that whatever you have in your current escrow account will be returned to you as a credit at closing (if refinancing with current lender) or as a check after closing (if refinancing with new lender). To save yourself some money, shop around on homeowner’s policies and anything else you might save some money on.
As always, if you don’t understand anything you’re looking at, ask the person who gave it to you. Lenders are happy to explain, as the better you feel about the deal, the more likely they are to get your business. And the more you know, the better armed you are to get the best deal available.