mortgage

5 steps to a successful refinance

Title charges are also part of a new loan's cost structure. These include the cost for the search that ensures the home title is clear, title policy insurance and a closing or settlement fee. Other local recording and tax transfer fees also apply.

Depending on the circumstance, notes Short, borrowers may find that a good-faith estimate of closing charges also includes sums for property taxes or insurance payments. However, your current lender likely will refund this money at closing.

When consumers use a mortgage broker (as opposed to a bank), looking at the good-faith estimate may not provide enough information to decipher exactly how much money the broker is making on the loan, Zigas says. For instance, the broker may earn a fee from charging a slightly higher rate on your loan, known as a "yield spread premium."

"Ask him specifically what he's getting, and if you don't think it's fair, say so," Zigas says.

Knowing that consumers aren't eager to write a four-figure check to secure a new loan, lending firms typically offer "no-cost" refinancing.

But there's no such thing as a free loan. With a no-cost refinance, lenders usually charge a slightly higher interest rate and roll the costs into that higher rate charge.

Alternatively, borrowers can often tack on closing costs to the mortgage amount they seek.

Step 5: Watch the little details 

Once you've selected the lender and loan that is best for you, it's time to apply for a refinance. From this point forward, it's important to keep an eye on the small details that can make a big difference to your bottom line.

Because mortgage rates move up and down -- sometimes significantly -- from day to day and week to week, it's important to lock your rate when you find a good deal. A rate lock is a contract guaranteeing that the rate your lender offers will remain in effect for a specific period.

"Most people lock in their rate so they get the rate at closing that they were (quoted) at application," says lender Palandri.

Ask your lender for a rate lock that doesn't cost you anything -- or at the very least, a minimal amount. Moreover, look for a lock that guarantees your rate won't go higher, but will go lower if mortgage rates continue to fall.

You may feel great relief once the application process is over and you are ready to close. But it's important to remain vigilant, particularly in terms of extra fees.

Although good-faith estimate of closing costs lists what the charges for your loan, it's not always exact. It can be especially complicated to figure out exactly how much homeowners insurance and property taxes must be paid at closing, Short says.

"If, for example, property taxes are due October 1 and you're closing in September, you may be asked to bring in the tax due so they can be sure they are paid," he says. "Then you'll be reimbursed later for the property tax money sitting in your current lender's escrow."

Additionally, borrowers may be asked to prepay some interest charges, explains O'Brien. If they close in the middle of the month, for example, they may need to pay interest for the remainder of the month.

Make sure you have enough extra cash in your savings account to cover these extra fees. If you don't think you can do so, talk to your lending firm about adding the extra amount to the mortgage principal you're requesting, Short says.

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