How to Shop for a Refinance Mortgage

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When interest rates fall, it’s time for consumers to evaluate current home loans. Securing a lower interest rate reduces financing costs and can lower monthly home payments. Home owners also may choose a shorter loan term, allowing them to pay off the loan sooner. Spending time researching the best rates and negotiating with your current lender can help you maximize monthly savings.

Review your credit standing. Before shopping for a refinance loan, it’s important to know where you stand. Request a credit report, which is free to you every 12 months as the Annual Credit Report. Consumers with a high credit rating have access to lower interest rates, which means lower monthly payments.

Contact your current lender. Refinancing with the existing lender can save you money. Lenders are anxious to retain business. Since it’s expensive to lose customers, some lenders may offer no-cost refinancing, which can save you hundreds of dollars or more (depending on the loan type). Ask your existing lender for information on any current offers.

Shop loan rates. Even if your existing lender is offering an attractive deal, see how the offer stacks up with competitors. Check out loan comparison tools, such as BankRate.com to find the best interest rate. If there are better rates available, ask your existing lender to match them.

Negotiate fees. Some consumers make the mistake of not negotiating fees, when some fees are negotiable. The easiest fee to negotiate is the application fee. For a home mortgage, this fee can be a couple hundred dollars. Other loans, such as auto loans, may have a $100 or less application fee. Ask the lender to waive this fee. Attorney review fees (for home mortgages) also may be negotiable.

Tips & Warnings

  • According to the Federal Reserve Board, it’s not always a good time to refinance. If you’re close to paying off the loan, refinancing is really expensive. In the beginning of a loan, the bulk of monthly payments goes toward interest. However, as you get closer to the end of the loan term, more money goes toward principal.
  • Watch out for pre-payment penalties. With these fees, a lender will charge you a fixed amount if the loan is paid off early. If you decide to pay off (or refinance) the loan early, this can be expensive. Select a lender who doesn’t charge this fee.

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