According to the National Bureau of Economic Research, mortgage rates recently dropped to an all time low. The rates fluctuate, but it’s still an excellent time to look at refinancing your mortgage and possibly saving some big bucks!

How do you go about doing that, you ask? Well, let me tell you the steps and tips that worked for me.

STEPS

1. Go to bankrate.com to get an idea of what rates are. Keep in mind, rates change daily!

2. Call your current mortgage company. Tell them you’ve heard about the dramatic drop in mortgage rates and ask what kind of rate they can give you. A lot of times your current mortgage company won’t make you jump through the same hoops as a new customer, which could lead to lower closing costs. Make sure you ask them about it! Also, let them know that you’re going to shop around but that you’d be willing to stick with them if they can give you a good rate.

3. If you belong to a credit union, call them! Most times, credit unions have the best rates, and they will sometimes give you a rate discount if you have direct deposit with them!

4. Get at least 3 or 4 quotes.

5. When you get the top two quotes, call the company with the second best rate. Lay it on the line and tell them who gave you the best rate and what it is. Then ask if they can beat it. Most people don’t realize it, but rates are negotiable! If they give you a better rate, call the other company and do the same thing!

6. After getting the best quote, ask for a “Good Faith Estimate” from that company. A “Good Faith Estimate” details out your monthly mortgage payment and your closing costs. Using that, you’ll be able to look at your current monthly payment and see if refinancing is the right choice.

Tips

1. Always try to talk to someone higher up in the company. They have more experience and are more likely to work a deal with you. And, always try to talk with the same person. They have a vested interest in you because they get commissions on what they sell!

2. Make sure that you’re comparing apples to apples. For example, 30 year fixed with 1 point to 30 year fixed with 1 point.

3. If you have a recent appraisal, ask if it can be used. If so, it will save you money on your closing costs!

4. Check their math! I found numerous errors in our settlement documents that saved us several hundred dollars!

5. Banks typically have the highest rates, so I wouldn’t include more than one in my rate quotes.

I know that refinancing a mortgage can be a scary proposition, but with these simple steps, you’ll be able to make the best possible decision for your family! Good luck!!

This has been a guest post by Tammy from Springfield, VA
Find out more about the KCL Contributor Network!

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17 thoughts on “The Art of Refinancing: How to Cash in on Low Mortgage Rates”

  1. Jenna Hood says:

    We are currently looking into buying a home and were shocked to learn about yield spread premiums. It’s when a mortgage broker tells you that you qualify for one rate, but you actually qualify for a better rate, and the broker pockets the difference. I probably didn’t explain it very well but google it and you will probably be disgusted like I was! That’s a lot of our hard earned money!

    • Katy Moore says:

      Sad but true. Brokers are not always better when you consider all of the factors.

      • Anonymous says:

        Can you refinance when you have been late on some mortgage payments? (My husband got laid off and now has a good job and we are trying to get caught up) But, having lower monthly payments on our mortgage would help a lot! Also, do you have to have excellent credit?

        • Katy Moore says:

          Ask the loan officer where your loan is to check into their guidelines. From my memory, I think you are allowed one 30 day late. (With my company) But we have pages of guidelines that we can go into and find out the details. It might depend on the type of program, too. (FHA, HARP, normal conventional) No, actually, if you are HARP eligible, you do not have to have any certain credit score to qualify, but the score will affect the rate.

  2. Anonymous says:

    Thanks Jennifer!!! I appreciate your comment…I’ll check it out.

  3. Anonymous says:

    If you are planning a refinance, make sure you are planning on staying in that property for awhile. If you plan to move in the next few years, the amount you pay in closing is probably not worth it. Also, this low interest rate is an attractive thing to homebuyers in the future. Say rates are around 7% in a few years, the buyer may be able to assume your mortgage at that low rate you have. Definitely a selling feature :)

    • Katy Moore says:

      That is not always true. I am a Mortgage Banker/Loan Officer. If you have a quality Loan Officer, they should be able to calculate everything and look at the amortization table to tell you when the break even point is. Sometimes it can be very short and still make sense to refinance, even if you do plan to sell. (Example, I had a customer who had 5.25%. I could get her 4.875% with 0 closing costs – bank covered them – and she saved $4000. She planned to sell in 2 years. Because of the rate drop and no fees, she saved in a short amount of time.) Loan Officers should ask you questions about YOUR goals and calculate everything specific to your situation to figure out what makes sense. So depending on your current rate, if you get a low enough rate, or the loan is at -1 points or -.875 points, the bank will cover all or most of the closing costs, therefore saving you in a short amount of time if your goal is to sell. :)

  4. Anonymous says:

    This is the time to refinance your home!!! Call your home mortgage broker today and get started on the process. If you can get an interest rate of 1% or lower than your current rate, then you will get ahead. I highly recommend a fixed rate loan with no prepayment penalties. If you look at the savings in mortgage interest over the life of your loan (tens of thousands of dollars or likely more), it beats most savings you will accrue anywhere else. Interest rates for traditional savings accounts are lower than 1%. The return on CD’s, money market accounts, and mutual funds are not currently higher than the percentage you can save on refinancing your home. My husband and I are cashing out both our Roth IRA’s (only what we’ve put into them) to pay down the principal on our home and refinance the balance. We will save $300 per month by doing this. Our rationale is that we will be saving more money overall than earning in interest in our other accounts. We are closing on our 30 year conventional (fixed) loan next week at an interest rate lower than 4%! With our lower monthly payment and monthly savings, we now have many more options.

  5. Anonymous says:

    We’ve been in our house 5 yrs and just recently refinanced down to a 15 yr mortgage. Our pymt only went up $90 and we shaved off 10 years off our mortgage. We were THRILLED!

  6. Anonymous says:

    We’ve been in our house 5 yrs and just recently refinanced down to a 15 yr mortgage. Our pymt only went up $90 and we shaved off 10 years off our mortgage. We were THRILLED!

  7. Jennifer Sollecito says:

    KCL: Thanks for the steps and tips. The whole idea of trying to refinance is hard for me to wrap my head around. there are so many things to know and watch for. Thanks for the easy checklist of sorts.

    • Katy Moore says:

      Pick a loan officer you feel comfortable with and who will spend time with you to help explain everything you want to know, and walk you through everything. They should be more than happy to answer any question you have. I know I always am. (I do mortgage loans) I understand it’s a lot, so it’s their job to help explain anything you want!

  8. Anonymous says:

    We looked into it a few months ago and sadly, since we owe more on our house then its “worth”, we can’t…we were told we’d have to put 10,000 down…we can’t do that right now…thankfully we are able to make our payments so far, but we can’t refinance. I wish we could. I think we are currently at 6.6%. This is our first house. Maybe I should look into it again…what information will the banks need to see if it’s possible with little out of pocket. Are closing fees expensive?

    • Anonymous says:

      FIgure 3-4% of the amount you are financing for closing costs. This amount should include escrow, which they like to have a year of premiums for your insurance and taxes in there.

    • Katy Moore says:

      Yes, ask your bank if your loan is HARP eligible. It was designed for this exact situation.

    • Katy Moore says:

      Also, in January they are changing the guidelines on HARP to be more flexible. If you are HARP eligible and are over 125% of the value, you can still be helped in January. :-)