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Monday 11/20/2017 Mortgage Rates

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Refinance
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Refinancing Costs

The loan amount, the interest rates, the lender, your credit score, and the time remaining on the loan all play a part in how good of a deal you're going to get when refinancing. You can save thousands of dollars if you play it right. These aspects of refinancing, however, all depend on the components that factor in and how much they're going to cost you.

Get Appraised and Approved

Getting an approval for refinancing entails updating the original information given to the lender at the time of the loan. The better you meet these standards, the more affordable your refinancing scheme is going to be.

Just like the approval process at the outset of the original loan, a process of reverifying your financial standing commences when you're refinancing. This is for the lender to recalculate how much of a liability you're going to be.

You will have to provide the paperwork for any recent changes regarding your employment, income, assets, and credit score. The following are all subject to assessment in order for the lender to give you the best refinancing options your money can buy.

  • Employment and Income: Your lender needs to verify that you have a job with a stable income. If you switched careers since the last time you met with your lender, inform them - a higher salary could mean lower interest rates.
  • Assets: The equity you've built from your home since the time you took out the loan could be converted into credit to pay off any late charges and closing costs, which helps in landing you a better deal. To derive your new home equity, a professional appraisal can be conducted on your home to factor in new forms of equity, such as a new kitchen or bathroom. This should tremendously improve the loan-to-value of your home and give you more leverage at the negotiating table.
  • Credit score: Credit scores range between 380 and 850. Lenders assume mortgagors with scores less than 600 a liability, while scores above 700 to be very reliable. Usually, 620 is the lowest most lenders will go to refinance a borrower.

Refinancing Fees

Escrow Fees ($600 - $2,000): This to protect the title company, current property owner, and lender from any unfulfilled contract obligations like insurance premiums and property taxes. This protects you in the case of property damage and is legally binding upon the borrower to fulfill certain conditions. All third-party affiliates (i.e. attorney, county recorder, couriers etc.) need to be paid for by the borrower to bring this contract of trust to a close.

Lending Fees: Refinancing requires fees for processing, underwriting, the lender's attorney, and your attorney.

Loan Discount Fees: On the borrower's say-so, they can opt for a loan discount by buying down the interest rates imposed on their loan. These fees, sometimes referred to as "loan discount points" - where each point is equivalent to 1% of the entire loan amount - are paid in a lump-sum. If borrowers want to decrease the monthly payments to which they're obligated, this could be a valuable refinancing strategy in the long run.

Appraisal Fees ($200 - $450): A professional appraisal of the buyer's home is not necessary for refinancing if they don't plan to use their home equity. On the other hand, if they want to tap into the equity they've built over the years to get a better mortgage, an appraisal is unavoidable. 

Credit Fees ($25 - $65): A credit report outlines your credit score and credit history, both of which are crucial to receiving an approval from your lender.

No-Cost Refinancing

This form of refinancing has the lender cover all the costs mentioned above (excluding credit fees). It is called "no-cost" refinancing because the lender pays for all the services that normally a borrower covers to kickstart a new mortgage or a new refinancing scheme. However, the catch of no-cost refinancing is that the borrower will pay for these services in the form of higher interest rates. This is because no-cost refinancing simply splits up what you owe in terms of lender services and charges you with higher rates.

What's the point, you ask? Postponing the refinancing fees and switching to another refi virtually for free.

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