Mortgage Refinancing: What You Should Ask The Lender

When refinancing a mortgage loan what you want to achieve is to exchange a loan which has terms that are not advantageous to you for a new mortgage loan with conditions that meet your needs and budget. That is why it is so important to contact the lenders calmly and make sure they answer all your doubts prior to applying for your mortgage refinance loan. Following is a list of question that you must ask the lenders and a brief explanation of the importance of the answer.

How Much Do You Charge For The Money Owed?

It is not strange that we did not ask for the interest on this question. The reason is simple, the interest rate is not the only cost you will need to cope with. Thus, you should ask your lender not only for the interest rate but also for any other additional fee or charge that you may incur in during the loan repayment.

Though a lender may tell you they only charge certain interest rate, truth is that you may need to purchase some discount points in order to obtain that rate and since discount points can be easily explained as pre-paid interests, if you really want to know the overall cost of the loan, you must add these discount points to the interests generated by the rate.

Also, whether the interest rate will be variable or fixed is an important issue. Fixed rates remain the same all through the life of the loan but variable rates will change according to market conditions and thus, you may end up paying more or less than what was budgeted due to these variations.

Do I Need To Lock The Rate?

Sometimes lenders offer a rate and when the client finally decides, market variations dictated an interest rate increment and the borrower needs to cope with the new interest rate which when income is limited, implies rethinking the loan again for successful repayment. However, it is possible to obtain a written agreement from the lender locking the interest rate if you commit to deciding about the loan application before certain period of time.

What Are The Down Payment Requirements?

When it comes to mortgage loans, with the exception of promotional loans like VA loans or other subsidized loans, the lack of down payment implies charges for Private Mortgage Insurance. Nevertheless, a down payment may be required by certain lenders depending on your credit and repayment capacity. Make sure to ask the lender whether a down payment is always required and if it is not, what benefits you can obtain by providing one (interest rate reduction, longer repayment program, etc.).

How Long Can The Repayment Program Last?

There are many different repayment schedules and each lender offers a variety of programs. Therefore, it is important to know what you can apply for and whether you can benefit from a longer repayment program or not. Repayment schedules can last anything between 10, 20, 30, even 40 years or more. But the usual repayment programs are 15 years, 20 years or 30 years long.

Are There Any Prepayment Penalty Fees?

There are lenders that will charge you extra for repaying your loan earlier because they would be loosing important revenues in terms of interests. However, not all lenders charge prepayment penalty fees and not all that do, charge high penalty fees either. Thus, you need to find out whether the contract includes this fee and how high will it be.