The benefits of refinancing don’t always outweigh the downfalls, so pay attention to all the details listed below.
Consider different options instead of focusing on one lender. It pays to look carefully into refinancing rates, terms, and fees offered by other lenders. Then, take your time and find your best deal.
Don't get fooled by the low rate. It is not always the best deal; sometimes it is used to disguise a loan with unusually high fees.
If you only get a slight reduction in your interest rate, say half a percentage point, it will take a long time to recover your closing costs. So refinancing your mortgage is generally a good option if you can decrease your interest rate by 1% to 2%.
You need to project how long you plan to stay in your home. For example, it might take your savings from refinancing more than five years to exceed what you paid to refinance, and you might have sold the home and moved by then, so it makes no sense to refinance under this scenario.
Take into consideration prepayment penalties. A common reason to stick with your current mortgage is the high cost of prepayment penalties.
Estimate, especially when it comes to fees. Be sure to inquire about such things as the loan origination fees, points, credit reports, and all other fees before applying for the loan.
Be aware of any other added fees. While things like loan origination, application, and title fees are unavoidable and legitimate, some lenders will add charges for things like "document preparation" or overcharge for obtaining credit reports or document delivery.
Finally, check over your final documents at closing to ensure they match what you were told before applying.