8 Ways to Cut Refinancing Expenses
Homeowners who are excited about lowering their monthly house payment have a tendency to ignore the cost of refinancing, because they’re rolling the expenses into the new mortgage.
If the payment is lower than what they are currently paying, and there is no money out of pocket, it’s a good deal, right?
Watch Out for Closing Costs Added to the Loan Amount
Refinancing your home because a lower rate is available might be good financial planning, but the closing costs associated with that new loan could add several thousand dollars to your mortgage balance.
We all know people who refinance whenever rates go down, and years after they bought their home, they owe more than they borrowed in the first place. Use caution when deciding to refinance.
Ways to Control Refinance Expenses
By following some of the suggestions, you may be able to reduce the expense to refinance:
- Tell the lender that you want the loan quoted with minimal closing costs.
- Check with your existing lender to see if the rate and closing costs might be less if you stay with them. They already know you pay on time; they might want to keep you as a customer.
- If you are refinancing an FHA or VA loan, consider the streamline refinance.
- Get quotes from two or three reputable lenders and compare rates and costs – apples to apples.
- Ask your Realtor for recommendations of good lenders. What you find on the internet almost never works out as promised. Realtors know who performs and who doesn’t.
- Reduce the loan-to-value ratio to eliminate mortgage insurance. If it means paying down the mortgage balance, and you are able to do so, this is a great time to do it.
- Consider a 15-year loan. If you can afford the higher payments, you can expect a lower interest rate than on a 30-year loan. You will also build equity faster and pay it off in half the time.
- How long do you expect to own your home? If you plan to move in a few years, forego the 30-year loan and get an ARM with a lower interest rate. There are excellent ARM programs available today.
Best Kept Secret
Here is one that no one tells you. Interest is paid in arrears, so when you take a loan, you don’t make a payment until 30 days later. (That’s why you owe that last payment when you pay a loan off – if you close May 31st, the June payment is still due in full for May.)
Make the first payment on a refinance the day you close on the loan.
It feels good to enjoy the month without a payment, but you’re getting a huge leg up on pre-paying the loan. Take a look at an amortization schedule to see how much you’ll benefit by this one simple act of discipline. Call us if you want help working that out.
Our goal is to help you be a better homeowner, by saving money and getting your real estate holdings to work for you in the big financial picture. We’re at your service.