mortgage

How can I avoid a refinancing rip-off?

EDITOR'S NOTE: Refinancing activity is soaring, so Bankrate asked personal finance columnist Dr. Don Taylor to answer some of our readers' most pressing questions about getting a new mortgage.

Don Taylorq_v2.gifDear Dr. Don,
I am interested in refinancing my mortgage, but I'm unsure about who to talk to and what to expect. Can you give me some advice and recommendations on whom to go to so I don't get ripped off?
-- Jose Jumpstart

a_v2.gifDear Jose,
I'm a big fan of getting my ducks in a row before going into the marketplace. For mortgage refinancing, that means knowing the terms of your existing mortgage and the latest mortgage rates, as well as reviewing your credit report and fixing errors. You also should know your credit score and goals in refinancing.

You've already come to the right place for finding the latest interest rates. Bankrate's weekly mortgage rate analysis is released every Thursday morning, as is its Mortgage Rate Trend Index. The mortgage rate analysis feature tells you where rates are; the Mortgage Rate Trend Index tells you where mortgage experts think rates are going. You can have both delivered as an e-mail alert Thursday mornings.

Reviewing your credit reports allows you to make sure there are no errors on the reports. The Bankrate feature "Fixing mistakes on your credit report" will help you through the dispute process.

You're entitled to one free credit report each year from each of the consumer reporting agencies: Equifax, Experian and TransUnion. However, you have to pay for credit scores. The Bankrate feature "How to get your free credit report" tells you how to get the reports. You'll have the opportunity to order the scores with the free reports.

If you're going to comparison shop among mortgage lenders, you want to do it in a relatively short period of time, less than a month, so your credit scores aren't negatively impacted by the comparison shopping.

What's your goal in refinancing? It could be lower monthly payments, a lower interest rate or both. If you have only 20 years remaining on your mortgage, refinancing into a 30-year mortgage at a lower interest rate could still result in higher total interest expense because you've just extended your loan out another 10 years.

If you don't need to extend the mortgage term to make payments more affordable, look at shorter refinancing terms. The Bankrate calculator "Will you save by refinancing your mortgage?" helps you with the math. Remember, you have to plan to be in both the house and the loan for a while to have refinancing make sense.

You can pick your lenders by using Bankrate's "Compare interest rates" page, or you can work with a mortgage broker. If you're going to work with a mortgage broker, I recommend you seek out an "upfront mortgage broker" as discussed by the Mortgage Professor, Jack Guttentag, in the Bankrate feature "Want your mortgage wholesale? Try an upfront broker."

Finally, take a look at the FTC Facts for Consumers Guide "Looking for the Best Mortgage: Shop, Compare, Negotiate" and use the Mortgage Shopping Worksheet available in that publication.

Does a refinance make sense for you? Try Bankrate's refinance calculator to find out how much you might save.

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