Refinancing 101: Tips and Advice to Keep in Mind

Real Estate Broker/Owner with Prudential Texas Properties

Refinancing 101- Tips and Advice to Keep in MindDespite mortgage rates having ticked up recently, they're still hovering around historic lows. For qualified home owners, record low rates mean that you could realize substantial savings by refinancing. Here are some tips and advice to keep in mind if you're considering refinancing your Allen home.

Shop Around: Sure, your current mortgage provider can likely help you with a refinance if you're well-qualified, however, shopping around is important since mortgage rates can vary so widely. Do your research before you agree to anything, and make sure you speak with a variety of lenders to see what they're currently offering. Rates can vary by 1% of more from lender to lender, which doesn't sound like a lot, but can translate into hundreds of dollars each month depending on the value of your loan. And look at more than just rates when you're speaking with lenders. The fees and quality of service you receive should absolutely be factored into your decision.

What is Your Break-Even Point? While mortgage rates are extremely attractive these days, you might already have a mortgage rate with a low rate that doesn't warrant a refinance. Remember that new loans generally carry closing costs which can equate to thousands of dollars. If you're refinancing into a loan that doesn't help offset your cost much, you're probably better off sticking with the loan you have. Consider things like how much the closing costs would be, and how long you're planning to stay in your Allen home. Here's a  good rule of thumb to follow: Refinance only if you can cut your mortgage rate by 0.5 percentage point or more from what you're paying.

Don't Be Fooled By 'No-closing-cost' Deals: Loans are not free to complete, and even those marketed as "no-closing-cost" deals are going to have fees hidden somewhere. Ask your lender to show you all of the options that are available to you, and know that typical closing costs are about 1% of your new mortgage's principal. These fees help cover things like appraisals and lawyer's fees, and since most lenders aren't going to pay them out of the goodness of their hearts, chances are, you'll be footing the bill.

Can You Do a 'Cash-In' Refinancing?: Whereas "cash-out" refinances were really common during the housing boom, these days, "cash-in" refi's are becoming more and more popular. This is where a home owner swaps their existing loan for a smaller mortgage by bringing cash to the table to make up the difference. For home owners whose property values dropped precipitously during the housing bust, this is a great solution to boost their Allen home's equity to 20%, which is the minimum that many require to refinance. By doing this, people who wouldn't otherwise qualify can take advantage of the attractive interest rates.

Obtain a Rate-Lock Confirmation: Today, lenders are bogged down with tons of refinance applications because of the attractiveness of mortgage rates. If you find a deal that you can't live without, make sure you obtain a rate-lock confirmation from your  bank. These are generally emailed out and confirm the mortgage rate you're getting in addition to when the rate lock expires. It's a great way to keep your bank on task and also hold your lender accountable for the deal they've made with you. Generally speaking, a 60-day rate lock is fine to ask for, but make sure your lender can close your deal before the lock period expires.

To learn more about Allen homes for sale, please watch our 60-second Allen real estate market overview.


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