Consumer Law

Tips for refinancing your mortgage

By Randall Ryder

Bad news: property values are way down, to the point where many people are sitting on mortgages at or above what they paid for their house.

Good news: mortgage rates are low, making it a great time to refinance. You can also install energy efficient appliances to put some money in your pocket.

But before you refinance—be sure to check all your bases. Here are a few things to consider before moving forward.

Application fees

Many lenders charge non-refundable application fees—usually around $500. If your refinance doesn’t work out, you are not getting that money back.

More documents

Even if you refinance with the same bank, the terms of available loans have changed—and you may have to hand over the kitchen sink in documents to get approved on a new loan.

Hidden risks

Be sure to ask your lender about how the refinance process works. For example, if your house is appraised at a lower value, your lender may require that you pay private mortgage insurance (PMI) every month if you refinance. This may offset any savings in having a lower interest rate.

Closing costs

Closing costs are usually several thousand dollars. If you do not pay them up front, but add them into your mortgage, you will be paying interest on that money for the entire period of your mortgage (usually 30 years).

Bank rate has a nice calculator for costs as well as rate and lender information.

Bottom line: refinancing can save you money—just do your homework before pulling the trigger.

Refinancing Your Mortgage | 350 Degress of Financial Literacy

(photo: U.S. Geological Survey)

Full post as published by Caveat Emptor on June 30, 2009 (boomark / email).