You are ready to refinance and have been matched to a few lenders that can help you through the process. But do you have all the necessary information? LowerMyBills is here to help you in the process by giving you the must-ask questions you should pose to your lender before going through with the refinance process.
1. What do I need to qualify?
Each lender has its own set of qualifications so you should find out what theirs are. They will evaluate you based on your credit score, debt-to-income ratio and the equity in your current home.
2. What types of refinances do you offer?
Typically, lenders will offer two types of refinancing options. The most popular is a rate and term refinance, where the refinance will change the rate and term of your mortgage loan. The second is a cash-out refinance where you can accept a higher loan balance in exchange for taking out cash from your home’s equity. You should make sure that your lender explains these options as well as the pros and cons of each.
3. What are the closing costs associated with refinancing?
In most instances, you will need to pay closing costs to your lender when you finalize your refinance. The average refinance has closing costs that are equal to 2-3% of the total value of the loan. You should be sure to find out what closing costs you will be responsible for to make sure the refinance is worth it.
4. What would my interest rate be with a no-cost refinance?
A “no-cost” loan is a refinance that has no out-of-pocket costs and the lender incurs all of the settlement and closing costs. This is typically made up of a higher interest rate compared to a typical rate and term refinance.
5. Can you lock my rate?
Especially in this climate, mortgage interest rates can vary wildly on a daily basis. Since refinances don’t close in a day, getting a rate lock would be key in terms of making sure that you secure the rate that you are expecting to receive when you begin the refinance process. This will protect you against interest rate changes in a moving market. If your lender does offer a rate lock, you should find out how long the rate locks for and if it is free. Based on their answer, find out what the cost would be to extend your rate lock in the event the refinance process runs longer than expected.
6. Do you have a price match program?
Most lenders will let you know that they can get you the lowest refinance rate possible, but some will go the extra mile with a price match program where they will match a lower rate than you find from another lender. This is a good way to ensure you are getting the best rate for your situation.
7. How will my monthly payments be affected?
Based on the type of refinance that you end up with, your monthly mortgage payment will go up or down. If you are refinancing to a lower APR and keeping your loan term the same, you can expect your monthly payment to drop. However, if you are looking to save money over the total life of the loan and are reducing your loan term, your monthly payment will increase.
8. How much equity can I take out of my house?
In general, most lenders require that you leave 10-20% of your equity in your property if you are taking cash out of your home. You should make sure to ask your lender how much of your available equity you can take out with a refinance, as you may want to work with another lender if you can’t achieve your initial goals i.e. home improvement or paying down outstanding debts.
9. Will you service my loan in-house?
Many lenders sell the loans they close on to make sure they have enough cash flow for the next loans. Ideally, you should look to work with a refinance lender who will service your loan in-house to ensure that the lender will be there for any questions or concerns with your loan.
10. What happens at closing?
You will receive a closing disclosure 3 business days before you close your refinance that included info on your new term, APR and closing costs that are owed. You should make sure to ask your lender to walk you through the full closing process to make sure you are fully prepared in terms of what to bring at closing, who will be present and what will happen in the closing meeting where you will be acknowledging the Closing Disclosure.
Refinancing should be a beneficial action on your part, but you should make sure you have all the necessary information before you choose to work with a lender. It is important to ask these 10 questions, as you may be able to get a better rate and will have more information on the real cost of the refinance and if it makes sense for you. We recommend that you make sure to ask your lender any and all questions until you are comfortable and don’t feel bad about shopping around for different lenders before settling on your final choice.