Pieces of the Refinance Home Loan Puzzle
Conventional wisdom tells us that when interest rates fall, it becomes prudent for homeowners to take out a refinance home loan. However, this should not be done without first considering if this is a financially logical step, or whether refinancing itself would even be beneficial. While low refinance mortgage rates can make taking out a second mortgage more advisable, other considerations should also be made.
Simply put, a refinance home loan is a loan that a borrower takes out in order to cover the original loan, or the last loan that was refinanced. While the initial loan is typically the first one paid off, a refinance home loan can also be used for refinancing a home equity loan.
Choosing Your Refinance Home Loan Poison
If you are currently making payments on a mortgage with a fixed-rate, when you refinance you can still take out a different variety of mortgage loan. Nevertheless, prior to switching from a mortgage with a fixed-rate, to another type of mortgage, make certain that you fully comprehend the new loan's terms. Types of mortgages that you could contemplate include FHA Loans, Interest Only Mortgages, Adjustable-Rate Mortgages, Reverse Mortgages, and Option ARM Mortgages.
Price Tags and Garbage Fees
Yes, some mortgage lenders offer refinance loans with no costs. However, keep in mind that lenders are not working for free. Costs charged for making the loan could be hidden in sky-high interest rates or in the loan itself. Insist that the lender provides you with a Good Faith Estimate (GFE). The law does not require these figures to be guaranteed. However, any ethical lender who is dedicated to earning your business will not hesitate to provide estimates that are guaranteed.
When securing a refinance home loan, you might be required to pay some of the following costs:
Administration
Application
Appraisal
Beneficiary Demand
Credit Report
Delivery and Courier
Document Preparation
E-Mail Documents
Escrow Fee
Inspection
Loan Origination
Loan Tie-In
Notary
Processing
Reconveyance
Recording
Tax Service
Title Policy
"Garbage fees" are ones that the borrower can negotiate with the lender of the refinance home loan. In fact, if you ask tactfully, the lender may even exclude these charges.
Lastly, you should ask early about a particular item on your YSP closing statement. The item is referred to as "paid outside of closing." The bank returns these funds to the mortgage broker for bringing your loan to the lender. When the lender does not render this YSP to the broker, you can obtain a lower interest rate on your refinance home loan. Furthermore, you could render less in points.
Low interest rates do not dictate that you should automatically take out the first refinance home loan available. Instead, you should do your homework, in order to determine where the rates fit in the "big picture."
