How to Get Out of Fixed Rate Mortgages Without Paying Hefty Fees
Refinancing a fixed-rate mortgage can be easily done. Refinancing without incurring large origination and closing fees can be challenging. The key to avoiding fees is research. There are an inordinate number of lenders in the financing business. You must sift through the myriad options and find a lender willing to refinance at a lower cost. Finding these lenders can be tricky.
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Instructions
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Determine the reason for the refinance. Fixed-rate mortgages are often preferable to the alternatives because the standard payment on the loan will not adjust for the life of the loan. You need to have a good reason to refinance, such as interest rate reduction. Most lenders make all loans pass a benefits test.
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Pull a copy of your credit report. You can obtain a free copy of your credit report online at annualcreditreport.com. You'll also want to pay for your FICO score, which is a three-digit number between 350 and 850 that represents your creditworthiness. If you have a score below 620, you have little to no chance of obtaining a low-cost refinance.
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Make sure your credit score is above 720. This is the cutoff for the premier, competitive rates and programs. If you truly wish to avoid hefty fees you must have an excellent credit score.
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Make sure your debt-to-income ratio (DIR) and loan-to-value ratio (LTV) are low. Good ratios for DIR and LTV are 40 percent and 80 percent, respectively. To calculate your DIR, divide your total monthly expenses by your gross monthly income. To calculate your LTV, divide your proposed mortgage balance by the value of your house.
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Research small community banks and credit unions. Large banks often have mandated fees, even for the most qualified customers. Smaller banks often offer their best customers fee-free, or low-fee loan programs.
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Compare all refinance programs side-by-side. You will almost always need to pay closing costs, but you may be able to avoid all discount points, origination points and other fees assessed on mortgages.
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