How to Compare Refinance Offers
Most of the same rules apply to refinance as to first (or purchase) mortgages, but since refinancing is optional, you will want to compare not only the refinance offers to each other, but also to your current mortgage and your expectations.
Interest rate and APR
This is always a primary point of comparison, since it impacts your monthly payment and lifetime cost of the loan. APR – the Annual Percentage Rate – takes the interest rate, certain lender fees, certain third party fees, and any discount points, spreads them out over the life of the loan, and calculates them as an annual percentage of the loan amount. If there’s a significant difference in the APR and the interest rate– more than a few hundredths of a point – ask for a list of what’s included in the APR calculation. Discount points – cash you pay up front in exchange for a lower interest rate – can significantly lower your interest rate, but also increases your up-front costs (and thereby your APR) by thousands of dollars.
Closing costs
Closing costs are made up of all the fees charged by the lender, in addition to fees charged by third parties in connection with your loan. The title search and the appraisal can fall into this category. Examine the Good Faith Estimate of each loan offer carefully and compare both the total and each line item. Be sure to ask your lender about any item that you don’t understand. To read more on this topic, see our article on how to read a GFE.
What you can negotiate
Let your prospective lenders know you are comparison shopping. This will give them an incentive to give you a good deal. Interest rates are sometimes negotiable – some lenders include a small mark-up in the rate they quote you. Ask if they’d be willing to give you a break on the interest rate or waive any fees in order to win your business.
Your original goal
Finally, be sure to compare the loan offers against your original expectations and goal. Which loan offer lowers your payment the most? Which loan gets you to a break-even point faster? Which loan saves you the most over the life of the loan? There’s so much to think about and it’s easy to get side-tracked by the details. Keep yourself focused on your goal.
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