How to Find the Best Mortgage Refinancing Rate
Borrowers incorrectly assume that the lowest monthly interest rate is the best and cheapest option for their refinance. However, it is the annual percentage rate (APR) that is actually the best indicator of the overall cost of the mortgage. With the proper comparison of two to three different mortgage options, a borrower can find the cheapest and best mortgage option that fits his individual needs.
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Instructions
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Ask two to three lenders to give you a Good Faith Estimate and Truth in Lending Statement on your desired term (length of the loan, usually 15 or 30 years) and refinance amount.
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Compare the APR (annual percentage rate) on the mortgages. This percentage can be found in the top left hand box at the top of the Truth in Lending Statement. The APR is the numerical representation of the overall fees and costs associated with the mortgage for a full year and the monthly interest rate. Lenders are required by law to use the same method for calculating the APR. The lowest APR is the lowest cost loan.
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Compare the Good Faith Estimates to see where the fees associated with the loan are originating. If there is a large discrepancy between the APRs, the difference between them will be found on this page. A common error made by lenders is to forget to add in the insurance and taxes onto this page. If this line item has been left off, the APRs are harder to compare. However, if the difference is due to "points" or a fee to purchase or "buy down" the interest rate to a lower rate, the amount will be reflected on the Good Faith Estimate as well.
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Tips & Warnings
Choose the mortgage with the lowest APR that has the terms that match your needs. If a higher cost lender is more preferable to you for any reason, show her the lower cost Good Faith Estimate and see if she can lower her fees to match that one. Most lenders are willing to reduce fees to capture a new loan.
Compare your original Truth in Lending Statement and Good Faith Estimate to the ones that you receive on the closing table to ensure that additional fees were not added to the mortgage without your knowledge.
