Loan Resources

6 Questions to Ask About Refinancing

Before you refinance, it’s a good idea to get certain information from your lender and compare it with your current mortgage. Use our list of questions to make sure refinancing is right for you:

1. What is the interest rate and what will my monthly payment be?
Will you be paying discount points (pre-paid interest) to achieve that rate? (For a detailed discussion of how discount points work see our article titled Discount Points. Will the interest rate change over the life of the loan (an adjustable rate), or stay the same (a fixed rate)?

If your new mortgage will have an adjustable rate, plan for future payment changes by asking: Is there an initial fixed-rate period (usually one to seven years)? How often will the interest rate change -- monthly, every six months, annually? What is the most it can increase in a year? As an exercise, ask your lender to help you calculate what your payments would be in the worst case scenario.

2. Will the interest rate change before the refinance goes through?
Interest rates fluctuate daily, usually by less than a tenth of a percent. But over the course of the three to six weeks it takes to process your loan, the rate could change significantly. To avoid surprises when you sign your documents and the new mortgage takes effect, you will want to know how the rate may change. Lenders often have a variety of ways to deal with your rate between application and closing: you can “lock-in” your rate as soon as you apply, or if the rate goes down, you may have the option to “float-down” – take the lower rate. There may be a charge for these options.

3. How much is this going to cost me up front?
Getting a mortgage usually involves handing the lender a big check. While you don’t have a down payment in refinancing, closing costs (fees the lender charges for processing your loan) can easily run into the thousands of dollars. In addition to the lender’s own fees, they may also pass on fees from third-parties that work with the lender on your loan, like the appraiser and the title search. Get an itemized list of these charges - it will tell you how much cash you’re going to need at closing (and how much it’s going to cost you up front to refinance your loan). Be sure to ask the lender if any of them are negotiable – the worst they can say is no.

4. How long until my house is paid off?
This is the term of the loan. Usually it’s 30 years, but it could also be 10, 15, 20, 25 or even 40 years.

5. Will I have to pay private mortgage insurance?
If you own less than 20 percent of your home, you will have to pay private mortgage insurance or take out a second (piggyback) loan. PMI can either be a lump-sum premium paid at closing or a monthly premium charge or some combination of those two. Premiums are usually between 1-5 percent of the loan amount.

6. Will I have to pay a fee for paying off this loan early?
Some lenders charge a penalty for paying off a mortgage early (pre-payment). If your current loan has a pre-payment penalty, you’ll want to factor this into the cost of refinancing. Also, be sure to check if your new loan will have a pre-payment penalty.

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