Before facing off with a lender, before applying for a mortgage loan modification, there is, of course, research.
You should never be alienated in the discussion. Know the common terms used in the deal in order to keep track of the conversation and know where you stand. Not everybody is a financial analyst, but one should know enough. So here are the essential factors on mortgage refinancing that you need to know before sitting at that table:
Up-Front Costs or Closing Costs
Closing costs are fees and other miscellaneous billings that come in a typical mortgage refinancing deal.
Insurance fees, attorney fees, title insurance as well as other costs are included in this category. It is important to know what the final amount would be right before you close. If it is far from the sum that you had in mind, then perhaps it’s best to re-assess and get a better rate somewhere else.
Think of paying points as the initial amount the mortgage financing company is asking to start the new loan. Consider it as down payment. It is usually a considerable amount; this is in exchange for lower payments, lower interest rates and/or a longer term.
Points are usually a percentage of the loan amount, so when they say 5 points, it means they are asking for five percent of the loan balance upfront.
This one is easy to understand. This means the length of time you agree to pay off the loan and its interest. Know that the longer the duration, the more the interest will take away from you. On the other hand, a shorter duration means higher monthly payments, but saving more money in total.
FRM and ARM
These are the two types of mortgage refinancing interest rates. Fixed rate mortgage, as its name suggests, gives you a fixed interest rate in the new loan. This is favorable on long mortgage duration.
Adjustable rate mortgages on the other hand, is adjusted periodically, according to a number of factors in the market. It could also work for you, depending on your situation.
Prime and Subprime Lenders
Subprime lenders are financial companies who may approve of your loan even if you have bad ratings or credit. They are not as orthodox or as strict as prime lenders. However, their terms may be different that conventional loans. It is not surprising for them to offer you higher rates for mortgage financing.
Check your credit scores first. You may find that you are enough to qualify prime loans.
Credit rating pertains to your history of payments and obligations in settling your debt. Before sitting at that table, it is best to know your credit score and history very well. A good and bad credit rating will affect the rates that you can get.
Current Interest Rates
Do your research and know what interest rates are available out there. Know what limits can work for you and what is not possible for your budget. Compare your current mortgage rate and the interest rate you are aiming to get. Shop around and consult other lenders if possible.
If you come across a term you do not understand in your discussion, do not hesitate to ask right away. Clear communication is key in getting the right mortgage refinancing loan for you. Good mortgage company representatives will also be eager to explain to you, because a smooth conversation does evolve into a good deal.