Current mortgage rates are still at historic lows, and the Federal Reserve recently announced its intention to keep the Fed Funds and Discount rates near zero for the near future. With low interest rates available in the open market as well as the Home Affordable Refinance Program (HARP) it's a good opportunity for many homeowners to refinance. Low mortgage rates are only one part of the refinancing equation, though, and prudent consumers should take a few extra steps to examine the fees and costs which can accompany today's current mortgage rates.
When researching closing costs, compare:
- Points. This includes discount points, used to lower the loan's interest rate, and percentage-based origination fees (origination points). Any costs which are expressed as a percentage of your loan amount should be considered points for comparison purposes. Each point is equal to a fee of 1% of the loan amount. Some "no-point" loan refinance offers may have no discount points but still have origination fees. A "no-points" loan does not mean a "loan with no fees at all."
- Lender/Broker Fees. Processing, underwriting, administrative, document, tax service, lender's inspection, and fees to wire funds to the closing table are all controlled by the mortgage originator. These fees can add up to several thousand dollars, so you'll want to review them and compare them among various lenders.
- Settlement/Escrow/Title Fees. Ask for the name and number of the settlement and title agents the lender will be using, and call them directly for quotes of their services to give you an accurate comparison to the fees quoted on your good faith estimate of closing costs.
- Pro-rated Payments. You may face some expenditures which aren't closing costs per se, but you'll need to put up the cash anyway. These can include pro-rated interest on your existing and new mortgages (called per-diem interest), and possibly property taxes and insurance. Make sure any quotes you receive include pro-rated payments.
As a rule, the lower the costs for a mortgage the higher the interest rate, and vice-versa. As you shop, you'll need to fit this tradeoff into your budget, how low you'll need your rate to be and how much cash you wish to employ to get the best deal for you. As you shop among lenders, ask for a copy of a good faith estimate, and compare it with others you accumulate. Lenders aren't required to give you one unless you actually apply for a loan, but many will provide one beforehand.
For more information, HUD has a free handbook on-line that can help you find the best mortgage for your circumstances. As you search for your loan, remember that the best mortgage for you may not necessarily have the lowest mortgage rate.
