Below is a list of some of some things I learned during the two times I refinanced in the past few years.
1) The lowest interest rate is not always the best deal. Some companies may offer a very low interest rate but may charge several “points.” A point is 1 percent of the amount you are borrowing. As an example, if you want to borrow $200,000 and three points are being charged it will cost you $6,000 to borrow the money in addition to other closing costs.
2) Closing costs vary with lender. The U.S. government requires lenders to provide what is called a “Good Faith Estimate” of what your closing costs will be. Closing costs typically include things such as: credit report fees, title company service fees; title search fees; loan origination fees; appraisal fees; and documentation fees. Your lender will give you an honest estimate of what your closing costs will be. Your actual cost may vary slightly because the lender does not always know what the exact cost of a certain fee will be such as the appraisal fee because they probably work with several appraisal companies who likely all charge different rates. One additional thing to keep in mind about closing costs: you may see advertisements that proclaim their company does not have any closing costs. That may be true. The lender may pay the closing costs for you but the tradeoff for you will likely be paying a higher interest rate.
There may be other fees involved when you refinance. For example, the first company we refinanced with required that 12 months worth of property tax money be kept in escrow with them. The credit union we took out our original loan with didn’t require any property tax money in escrow. We had to come up with a big chunk of money that we hadn’t planned on for that tax escrow account.
3) Ask if your homeowners insurance will be paid by you or if the lender will require you to pay money into an escrow account each month so they can pay it for you. Many lenders require you to pay into an escrow account to ensure the homeowner’s insurance will be paid.
4) Ask if the loan you plan on taking out can be sold to other lending institutions. The possibility of your loan being sold may or may not be an issue for you. It’s not uncommon for loans to be sold. It’s even likely your local bank sells some of its mortgages. I don’t happen to mind if my mortgage is sold to another lending company.
An online bank might be a good place to do business with. A good way to find out if the bank is a real financial institution, check to see if it is insured with the FDIC.
Get everything in writing and pay attention to deadlines. For example, if you are quoted a specific interest rate, get it in writing.