real estate

Re-Shopping Your Mortgage

Learn how to get the best deal and avoid surprises.

Check first with your current lender to see whether it offers lower rates to its customers. Lenders might be willing to lower the rate for a small fee to keep their customers satisfied. The key is whether the lender has held on to the original loan or sold it on the secondary market. If the loan was sold, then you'll have to go the traditional refinancing route.

To compare fixed-rate loans, look at the annual percentage rate (APR), even though it has limitations -- it assumes you'll hold the loan to maturity, for instance. Some lenders include the application fee, while others do not. Ask for the rate apart from the fees, and note which fees are nonrefundable.

Property values can be a sticking point because refinancing takes more equity than buying a house. Some lenders won't lend more than 75% of a home's value when you refinance for more than the balance on your current mortgage.

About one in four loan applications doesn't go through, and applicants lose hundreds of dollars in nonrefundable fees. Avoid that kind of disappointment and hassle by getting yourself prequalified. Check with local real estate agents to get an estimate of your property's value.

You don't need a new home appraisal when refinancing into a fixed-rate loan with the same lender -- provided the lender vouches that the property hasn't lost value since the original loan was made.

A full-blown credit report isn't necessary -- just a check of your existing electronic credit file and a simplified income verification. Your mortgage payment record must be good but not necessarily perfect.

You can roll up-front refinancing costs into the new loan, and you need not wait any minimum time before refinancing.

Consumer protections

Mortgage lenders must provide refinancers with "good faith" estimates of settlement costs and other fees associated with the loan. You must be given these estimates within three business days after applying for a loan, whether you have applied directly to a lender or used a mortgage broker. If you request the information, the lender must show you a completed "HUD-1" statement setting out actual charges one business day before settlement. (These changes bring refinancings under the Real Estate Settlement Procedures Act, RESPA, along with new home loans.)

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