How to Compare Refinancing Offers
When interest rates drop, consumers start thinking about refinancing. Securing a lower interest rate allows consumers to lower monthly payments and save money. Before making a loan decision, it's important to review current interest rates, closing costs and other expenses. This will allow you to secure a refinance offer that's best for your situation.
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Instructions
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Shop for the best interest rate. Refinancing presents an opportunity to lower your monthly payment. Finding the best interest rate will help you accomplish this goal. Check out online comparison tools, such as Bankrate. Input the loan type (auto, home or personal loan), loan term and credit rating to get a list of current rates. Write down the lenders who offer the most attractive offers.
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Ask about points. If you're refinancing a home mortgage, the best advertised rates may include buying points. When a consumer purchases points, they are paying an upfront fee for a lower interest rate. If you plan on staying in your home for several years, this might be a good deal. However, it will tack on hundreds--and even thousands--of dollars onto your closing costs.
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Request an estimate of closing costs. Depending on the type of loan, closing costs could range from $100 to thousands of dollars. Once you've narrowed possible loans down to a couple options, ask for an estimate of closing costs. Some items, such as attorney's fees, might be negotiable. Ask lender if they're willing to negotiate. If you have two loans that offer the same interest rates, closing costs can help you make a decision.
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Determine pre-payment penalties. Some lenders charge this fee if you repay the loan early. This may limit your ability to refinance in the future. For example, if the lender has a prepayment fee of $1,000, this would make it discouraging to refinance.
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Make a decision. After comparing refinance offers, choose the lender that's the best fit for your circumstances. When signing loan documents, read the fine print carefully. Make sure the interest rate, loan term and closing costs are the correct amount.
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Tips & Warnings
Consider refinancing into a shorter loan term. Financial institutions offer lower rates on shorter terms. Monthly payments may be higher, but you'll payoff the loan sooner and pay less in the long-term.
Don't forget to check with credit unions. Credit unions are non-profit, which means they return profits to members in the form of lower interest rates. Contact local credit unions to determine refinancing offers.
