7 Questions to Ask the Lender Before Refinancing
7 Questions to Ask the Lender Before Refinancing
All banks and lenders have a similar way of doing business. However, when it comes down to your specific needs and wants, it needs to be a little more clear and concise so you know exactly what you are getting yourself into. Here are some questions that you will definitely want to ask your bank or lender about your current or proposed mortgage.
- Are There Any Prepayment Penalties?
This question is extremely important to those who are looking to pay the house or loan off faster than it will be initially scheduled to be paid off. Paying the loan off early will save boatloads of interest off of the financed amount. However, be sure to ask this question to make sure that there are no costs or fees to pay it off sooner. Most banks and lenders do not penalize for prepaying the loan balance off, but it is ALWAYS a great question to ask. If there are pre-payment penalties ask “When is the soonest that I can pre-pay without any penalty?”. If you like the answer that you are given, decide from there whether it is something that you want to do.
- How Long Will It Take to Re-Coup the Closing Costs?
This question will allow you to know whether or not the whole process will be worth it to you or not. For example, if it would take you 2 years to recoup the closing costs and you are interested in selling the house in a year, it would not be beneficial to refinance. This question is really asking what your “break-even” point is. Normally, recouping the closing costs within 3 years is the industry average.
- How Much Are the Closing Costs?
Usually banks and lenders will not know the exact amount right upfront. This is normal because there are many factors that can affect the financed loan amount which is ultimately going to reflect on the monthly payment. The closing costs will usually include; an Origination Charge, Processing and Underwriting Fees, Appraisal Fee, Title & Recording Fees, Discount (if buying the rate down). These are just the main types of closing costs that you will see added into the financed amount. Your banker will review and explain the closing costs line by line if you ask them too.
- Can I Buy-Down the Interest Rate and How Long is it Locked For?
This two part question can be asked separately but both are good to ask, especially to ensure clarity in case something arises and more time is required to close. The PAR rate will be the interest rate that is available on the market at that current time. With a higher than PAR interest rate you are sometimes able to waive some closing costs, however you might pay more over the life of the loan with a higher rate. Buying the interest rate down can be a great way to save money in the long-term if you know you will be in the house a long time. However, always be sure to have your Loan Officer or Mortgage Banker break down the overall costs of buying the rate down and getting the PAR rate.
- Are There Any Out-of-Pocket Costs?
This question is good to ask if you know it will be hard to bring any money outside of the financed amount. Most of the time all of the closing costs associated with the mortgage will be rolled into the financed amount. The one cost that is usually not rolled in is the Appraisal Fee. Expect to pay this out of pocket, in most cases. Other than that you might have to bring a mortgage payment to closing. Most banks and lenders will allow you to skip a mortgage payment after the loan closes. This will help recoup any costs that you paid and also give you a reprieve from the mortgage payment. Be sure to always keep making mortgage payments during the process. Your Loan Officer or Mortgage Banker will let you know when to skip the payment.
- What is the Best Program That You Can Offer for My Scenario?
This seems like an obvious question but this will make them think again about the options that the bank or lender provides. There might be a program that is offered that might “click” when asked. Be sure to give them as much information about your specific scenario so they can “diagnose” the best program options that meet your needs. You might be surprised what options are available. HARP is one of them (Home Affordable Refinance Program).
- How Long Will the Entire Process Take?
This might seem like another obvious question, however, letting your Loan Officer or Mortgage Banker know right off the bat that you are looking for a quick closing can motivate them to close your loan faster. Again, you must be willing to send over the required documents and disclosures as soon as possible. If you do this, you will close faster than those who do not respond as fast. Most banks and lenders will try and close within 30-60 days. Some are shorter, some are longer. Be sure to ask how long the rate is locked in for as well in case it takes longer than anticipated to schedule the closing.
In conclusion, there are many questions to ask. These questions serve as a good starting point. Always be sure to ask as many questions as possible and jot the answers down on a piece of paper. This way you will have something to refer back to in case there are changes. They are there to serve you so do not feel bad asking them questions. You will feel much better after doing so. The only bad question is the one not asked.
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