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  • Questions to ask when refinancing

    Refinancing can help homeowners to save money by lowering their mortgage payments. The terms used to refinance are often lower or better than the rates and terms of their previous mortgage. Knowing what questions to ask a mortgage lender when refinancing mortgage can make the refinancing process faster and reduce unexpected costs.


    1. What different refinancing options do you offer?


    One of the first refi questions a borrower should ask is “what products are available to me?” Lenders offer a wide-variety of refinance programs to their potential borrowers. Some of them may be listed on their website, others might not be. Lenders also have wiggle room to customize products and rates on an individual basis. Having a conversation with a representative before refinancing can make you aware of all options at your disposal. This helps you weigh the pros and cons. The different loan terms offered by each lender you help you make an informed decision about your refinance.


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    2. How long will the closing process take?


    Depending on the type of lender you work with. closing, or completing, a new mortgage refinance can take some time. In some cases, it may be necessary to assess the home’s value in order to refinance the home through an appraisal, which can take around 7 days to complete. Paperwork can add to the time to close the mortgage as well, especially if you’re missing documentation.It is important to fill out all information correctly and update the lender on any changes to avoid delays.


    If you refinance through a streamline product, a mortgage lender may be able to use a previous documentation to process the new loan, which can come with a shorten the timeframe for closing. Be sure to ask if you’re eligible.  


    3. How much are closing costs and other ancillary fees?


    Perhaps one of the most important questions to ask when refinancing is about closing costs. These fees can add up quickly for homeowners looking to refinance their mortgage – many estimates are around 2-5% of the total home purchase price. Typical fees associated with refinance can be lender fees, appraisals and insurance for the title. Escrow insurance or other taxes may also be added by the lender. Asking the lender for a full list of all the closing costs, or a good faith estimate, is a great way to get a full understanding of the fees you’ll be asked to pay.

    What are the best questions to ask a mortgage lender when refinancing? (Photo/Pexels)


    4. Are there prepayment penalties?


    Homeowners who intend to pay off their mortgage early will find that this is the most important of refinance questions to ask their lender. Some mortgages have a prepaid penalty fee for those who pay their mortgage ahead of the estimated schedule, which is used to discourage homeowners from paying it early in order to refinance later for a cheaper rate. Prepayment penalties are expensive.


    The prepayment penalty is often 80% of six months interest.To put that in perspective, if a borrower has a mortgage rate of 6.5% on a $500,000 loan amount, that borrower is paying close to $2708.33 per month in interest. If we multiply $2708.33 by six months we get $16,249.98. 80% of the total interest comes out to a prepayment penalty of about $13,000. A significant amount of money.


    5. Can the rate be locked in?


    Another question to ask a lender when refinancing is about locking your rate.  Locking in a rate ensures that the new refinanced rate will actually save homeowners money in the long run. Often, when comparing rates with other lenders, homeowners will find that the rate does not stay the same when they return to complete the refinance. Many lenders offer the option to lock in a rate, which means that the lender commits to offering that rate to the homeowner when they refinance. This is one of the refinance questions to ask when comparing rates to help avoid rate increases.

    There may be a fee or other charge to lock in a rate with a lender. Homeowners who plan to compare rates over a period of time may end up paying a number of fees in order to lock in rates as mortgage refinance rates change. Some lenders may also offer a floating option, that allows homeowners to wait for the rates to go lower. This option can be risky as some times rates may continue to increase, costing more for the refinance.


    6. What are my deadlines for the application and approval processes?


    This question is especially important if you are eligible for the lowest rates and fees advertised at the financial institution. If there are deadlines by which you need to complete the paperwork to get the low rates, it would be a shame to miss the important milestones and therefore miss out on the deal.


    7. Can I eliminate my PMI requirements?


    Though it might take an appraisal to do so, sometimes refinancing can eliminate the need for a borrower to pay private mortgage insurance.


    Private mortgage insurance typically costs between 0.5% to 1% of the entire loan amount, per year. So, with a $100,000 loan this means a homeowner with a 1% PMI obligation could be paying as much as $1,000 a year, or $83.33 per month. Eliminating this fee can free up money each month for a homeowner.


    If you currently pay PMI ask your lender what you can do about eliminating the monthly expense.


    8. In your honest opinion, is now a good time for me to refinance?


    Trusting your lender is an important part of the refinancing process. That’s why it’s also important to ask your mortgage lender their humble opinion about your financial situation. A decent lender should be straight-forward with their opinion. Not only should your lender be honest, they should also point you in the right direction. If you’re considering an adjustable-rate mortgage, but your current financial situation is more suitable for a 20 or 30-year fixed rate refinance, your lender should tell you that. Ask around and see what the consensus is. You should get a good idea after asking this question a few times, what the answer is.


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