Protect Your Pockets
(originally published June 2009)
In our last article, we discussed the steps homeowners should to take in order to evaluate their budgets for refinancing. Now that you’ve prepared your budget, it’s time to review your options.
According to the U.S. Department of Housing and Urban Development (HUD), just knowing the amount of the monthly payment or interest rate on the new loan is not enough. Ask your lender or broker for information about the loan amount, loan term and type of loan so that you can compare your options. According to HUD, homeowners should to obtain the following information from each lender and broker:
- Ask each lender and broker for a list of its current mortgage interest rates and whether the rates being quoted are the lowest for that day or week.
- Ask whether the rate is fixed or adjustable. If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down.
- Ask about the loan’s annual percentage rate, which takes into account not only the interest rate but also points, broker fees and other credit charges you may be required to pay.
- Points are fees paid to the lender or broker for the loan and are often linked to the interest rate; usually the more points you pay, the lower the rate.
- Ask for points to be quoted as a dollar amount, rather than just as the number of points, so you’ll know the exact amount you’ll have to pay.
- Loans often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Every lender or broker should be able to give you an estimate of its fees, many of which are negotiable. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing.
- In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. “No cost” loans are sometimes available, but they usually involve higher rates.
- Ask what each fee includes. Several items may be lumped into one fee.
- Ask for an explanation of any fee you don’t understand.
Remember that you have the same rights during refinancing as you would during an initial loan application. The mortgage broker is required to give the homeowner a written “Loan Broker Services Contract.” That contract must include the dollar amount of the refinanced mortgage, the mortgage broker fee and the time period during which the homeowner must work with the mortgage broker exclusively. The mortgage broker is also required to give the borrower a written “Good Faith Estimate of Closing Costs” within three business days of taking the mortgage loan application.
Use the refinance savings calculator to help determine if refinancing is right for you. Should you decide to refinance, make sure you are working with a qualified loan broker. Call the Indiana Securities Division at 1-800-223-8791.
- Search loan broker database
- Contact the Securities Division