How Do I Know If I Got a Good Refinance Rate?

Find the best refinance rate.

When interest rates drop, refinancing a loan may help reduce monthly mortgage costs. However, finding the best rate is not easy. Closing costs, points and introductory rates make finding the best product tricky. Evaluating the interest rate and all of the costs associated with the loan can help you get the best deal possible.

Instructions

1. Evaluate the competitors' rates. Online tools make it easy to check out interest rates offered by other lenders. Check out Bank Rate, which allows you to compare lenders across the country.

2. Find out if published rates have been "bought down." "Points," also called "origination fees" or "discount fees," are optional fees that allow you to lower, or "buy down," your interest rate, but they can add several thousand dollars to the cost of your loan. For example, if your current rate is 6 percent with no points, a rate that has been bought down to 5.75 percent and includes points might not be a better deal. Ask the lender what the cost is for points.

3. Determine if interest rates have an introductory period. For example, if your new rate has an introductory period of 4 percent for 12 months, but reverts to a much higher rate at the end of the period, it probably is not a good deal.

4. Evaluate closing costs. When refinancing a home loan, borrowers pay thousands of dollars in closing costs. If you haven't closed the deal yet, talk with several lenders to determine who has the lowest closing costs. For example, fees such as document preparation, credit check fees and endorsements vary based on the lender.

5. Decide if it's worthwhile to refinance your home. Refinancing a home costs money. It's a good investment if you save over the long term. According to Yahoo Real Estate, it's worthwhile to refinance your home if the current interest rate is two percentage points lower then your existing rate.

Tips & Warnings

• Refinancing with your own lender may save you in closing costs. Lenders want to retain your business. Some have created special refinancing plans for their existing customers. These programs offer reduced closing costs and a streamlined closing process.

• Don't only look at the interest rate. Having a low interest rate is important. However, high closing costs, points and other hidden costs add up. Comparing these costs before making a decision will allow you to choose the best product.

References

• Yahoo Real Estate: Home Refinancing Basics
• Bank Rate: Compare Mortgage Rates