mortagesandforeclosures

by Brian Armstrong

Refinancing your mortgage can be one of the best financial decisions you make depending on how frequently you do this, the purpose of your refinance and the refinance product you decide to go with. You'll need to put your trust in another individual (usually your loan officer that works with a brokerage or a loan specialist with a bank) that will help you with the process of getting refinanced. Because you'll need to trust someone that will act in your best interest, the following are a few tips so that you'll be a little educated on the basic refinance process and a few "gotchas" about the mortgage industry.

The first tip that I have for you is to do your due diligence by shopping around. Don't automatically go sign up with the first office you visit unless you've at least talked with a couple of other loan officers and know that the first one you visit is the best. Several mortgage companies now have a lot of valuable information on the internet and finding their websites can be relatively easy to do. This will help you do some priliminary research before you decide to go with one company over another. Getting several quotes will at least give you a better idea of what a good rate is. Be cautious of the traditional bait and switch where a company will get you in the door with a low rate only to have a lot of additional fees and "points". Make sure you're comparing apples to apples and get the entire cost, not just the APR.

The second tip is to check to make sure your existing mortgage does not have a pre-payment penalty which will penalize you if you refinance. Most lenders have a 120 day prepayment penalty which means that you wouldn't be able to refinance within that 120 days without paying the pre-payment penalty. This also means that you wouldn't be refinancing more than 3 times per year usually. Some lenders do have a 90 day prepayment penalty, but most are 120 days. You can usually find this out in the original documentation on your loan or by contacting the lender or group that services your loan.

This third tip may be the one that saves you the most money in the long run. The base rate that a lender charges is called the par rate. The rate that you pay is based on this rate. If you are paying upfront costs including loan origination fees and other fees such as appraisals, etc, then you should be able to get very close to this par rate. If your lender is doing a no-cost refi, this usually means he or she is making money of selling the loan at a higher rate which will typically cost you much more in the long run. If you are in a home where you plan to live for the remainder of the time left on the loan, such as a 15 year or 30 year mortgage, your most cost effective solution is to get that rate as low as possible which may also include "buying down" the rate. Keep in mind that this strategy works the best if you are refinancing because the rate is very low. If you're refinancing becaue of a cash out or some other reason and the rate is only so-so, you may decide to not focus as much on the rate because you'll most likely refinance again in the future.

Also, if you don't know how long you're going to be in a home, whether there for a shorter amount of time, or have plans to "upgrade" to a new neighborhood within a few years, buying down the rate may not be the very best option. You may have more success financially if you focus on keeping your monthly cash outlay to a minimum and reduce the amount of capital required to close the loan. There are many good loan officers that will help you determine which program is the best for you. For instance, if you spend $3,000 to buy down the rate from a 5% to a 4.5%, you may save $30,000 over the life of the loan if, and only if, you keep that loan for the full 30 years (assuming a 30 year fixed mortgage). There is a break even where when you spend $3000, your break even may be 3 years or 4 years. A point in time when the buy down of the rate ends up being a better value to you than if you were to not buy down the rate at all. The same may be true for paying a higher rate to cover all of the closing costs through a no-cost refinance. Evaluate this with a good loan officer and you'll have an idea about what would be the best thing to do with your loan officer.

The fourth tip I have for you is to only run the credit check when you've selected with loan officer and brokerage you decide to go with. This may happen sooner than later after you've done some of your initial homework. It used to be that every inquiry, no matter what, would lower your FICO score or credit score. Because when shopping for a loan, you may have several inquiries from multiple agencies if you are trying to get pre-approved. The credit agencies changed this just for this reason that multiple inquiries in a given period of time (I believe something like 30 days) would not count against you as multiple inquiries, but as one inquiry. Still, there usually isn't a reason to have your credit "pulled" multiple times. Usually, you'll know based on an interview with some loan officers which one you'd like work with. You can then have them do the credit check because that credit report will stay with your file. So even if the loan officer has relationships with multiple lenders, you won't have multiple inquiries because the loan officer representing you already has the credit that can be supplied to the lenders.

The fifth tip I have for you is based on knowing about and understanding the yield spread premium or YSP for short. The YSP is a payout the lenders make to the brokerages for selling the loan at a rate above the "par" rate. The lenders have a rate sheet that they provide to loan officers and mortgage brokers. This rate sheet has a par rate which is the rate at which the bank doesn't require a buy down nor does it pay out anything to the loan officers at this par rate. The thing that is tricky about this YSP is that it doesn't show up on any of the loan documents. What this means is that if you are not a savvy borrower and don't know about this rate, the loan officer may tell you that the no-cost refinance is higher because they can receive compensation from the lender. What they don't tell you is how much they are receiving which is also fine. The problem comes when they charge more than would be considered a fair payout for work done within the industry. Keep in mind that most of the time, your loan officer is doing a lot of work together with a loan processor and they truly do earn their money, but it should be a reasonable payment and not anything exorbitant.

In conclusion, knowing about these few simple tips may save you thousands of dollars both on the overall cost of your home as it relates to the overall amount of interest you'll pay or even to help you determine whether or not you should try to get a no-cost refinance and pay a higher rate or whether you should try to pay down the interest rate. The real key is to find a good loan officer you can trust. Use some of these tips to get a good feeling that who you are working with is reiiable and trustworthy. Failure to know about these easy tips could cost you thousands of dollars when you refinance.

About the Author:

Brian Armstrong specializes in assisting Salt Lake City residents in getting a mortgage. You can find Brian's website online about Salt Lake City mortgages full of great information on home loans. Brian's Youtube channel also has some video content and other valuable resources about finding a mortgage broker in Salt Lake City.

Get all the information and photos:: http://mortgagewide.info/how-to-save-thousands-when-refinancing/