Refinancing Best Practices

Summary

Getting a refinance done is a huge financial transaction.

Here are items you should do to get yourself a good deal.

Refinancing

There is usually a lot of money involved in a refinance. With real estate values being what they are today most mortgages are in the six figure range.

Here are a few things you should consider when looking to do a refinance. Not thinking this through can end up costing you thousands of dollars up front or tens of thousands of dollars over the life of the loan.

Closing Costs

Your closing costs are the settlement charges for refinancing.

A “no closing cost” option usually skips these charges up front in exchange for a higher interest rate loan.

This usually also involves a prepayment penalty. If you are planning to sell the property or refinance again shortly this can end up costing you a lot of money.

Proper Term

Many people go for a 15 year loan because it allows them to pay off their mortgage soon as possible.

This type of loan has a very high monthly payment, much more so than a comparable 30 year loan.

There are new loan terms that are even longer than 30 years. This includes 40 year, 45 year, and 50 year loan terms.

Rate Locks

A rate lock is a written commitment by a lender to give you a specific interest rate and loan program for a certain period of time.

This is usually for 30 days.

After this day, your rate lock expires but some lenders allow it to be renewed for a fee.

Make sure you don’t lose your rate lock and end up with a much higher interest rate.