With all the Mortgage Rate news and advertisements in social media, many suggest to refinance your mortgage at these historically low rates as low as 1.99%. Unfortunately the 1.99% rate has large up front fees some may not be able to afford. Whether you aim to tap into some equity, change the term of your existing loan, or even just to snag a lower rate, there are some guidelines you can follow to minimize closing costs on your refinance.
Review the estimated closing costs and fees associated with the rate. There are two types of closing costs, recurring and non-recurring.
-Recurring closing costs: prepaid interest, homeowner insurance annual premium, property taxes installments and/or impound account reserves if you have an impound account. Recurring closing costs exist with or without refinancing regardless which lender you choose.
-Non-recurring closing costs: typically include, origination fees, lender’s application/underwriting fees, appraisal fee, credit report fees, escrow/title services charges, county recording fees etc.
Depending on the interest rates, the costs can vary. There are some fees you can shop around for, such as escrow/title services. It is important to keep an eye out for the fine print as there are many factors that will impact the interest rates, such as credit scores, how much equity you have, loan size, and type of the home.
Upon receiving the estimated fees, it’s important to calculate how long it will take to recoup the costs. Ask yourself, how long you will be in the same loan without selling the home and/or refinancing.
The rates constantly change with the market demands and fluctuations. Comparing the rate quotes from two different lenders on two different dates will not be an accurate way to tell who has a better rate.
One big tip is reviewing the estimate to find out if your proposed loan amount is significantly higher than your current principal amount owed. Some lenders advised a “no-closing-cost loan” by rolling the costs into the new proposed loan amount. This can end up costing you more than you save!
