3 tips for low cost refinance

A low cost refinance may seem like the "yellow brick road" to paying off your mortgage, but look behind the curtain before you take the plunge. A successful low cost refinance requires careful planning and meticulous calculation. Map out the details in order to get the best refinance possible.

Organize your files

In order to get a decent low cost refi, you'll need to prove your assets and monthly income. Organize your bank statements, pay stubs, brokerage statements and other financial records from the past three to five years.

Check your credit score and make sure it's in good standing. Correct any mistakes before applying for a new mortgage. Use Bankrate's FICO score estimator to see how your credit risk stacks up.


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Shop for loans

A great place to start shopping for your loan is your current mortgage provider. Make it clear that you'd like to refinance. The lender may offer you a better interest rate so it doesn't lose your business. Don't take the first offer you get. Shop credit unions, banks and mortgage brokers. The more offers you receive, the easier it will be to find a low cost refinance. Use Bankrate's mortgage loan-to-value calculator to see if you have the right amount of equity to qualify for the best rates on a low cost refinance.

Watch for closing costs

Make sure to receive a breakdown of closing costs from your mortgage company. The company is required by law to give you a "good faith estimate" within three days of applying for a mortgage refinance loan. Closing costs include things like the origination fee, credit check fee and application fee. They can end up totaling $2,000 or more. While they are a standard set of fees, some mortgage brokers may charge a higher rate called a "yield spread premium," so that they earn more on the loan. Talk to the brokers about what they are getting and bargain with them if you don't think the price is fair.

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