What should I be looking for when refinancing my home & what should I watch out for?
Answers:
You should refinance using a 15 or 30 year fixed mortgage with zero or 1 point depending on your return on investment of the interest rate variance. For example, 1 point on 100,000 is 1,000 dollars. If the difference is a quarter point (e.g. 6.25 vs 6.50), then the payment variance is $16.35 per month. The quarter point savings becomes worth it after the 61st month.
You should avoid loans that have an:
* early payoff penalty
* are interest only (you loose the built in savings account feature critical to any long term purchase and retirement)
* have a balloon payment after a certain period (e.g. 10 years) because you can't predict what the economy will be like then and the loans available at the time may not be affordable to you.
* are variable interest during this economic period of time. Variable loans are good to enter during high interest periods because the odds of the economy getting better are on your side which in turn would mean the interest rates will fall. Variable loans during near record low interest rates is foolish as the rates can really only go one way - up! And, you just may not be able to afford what it goes up to! If you still insist on this type of loan, at least choose one based on a semi stable index like the 11th district cost of funds or 3 year treasury bill, with no more than a 2.8% margin and adjustable no more than 1% each year.
* Have excessive closing fees. The bank pulls in their money here. But, as a refinance, this should be very low.
What you should look for, is of course, a low interest rate. I would try to get insurance and taxes escrowed in, if I were you. I did, and it's such a relief to not have to worry about crapping out $3000 every December, during Christmas season, for property taxes. What I would watch out for, is lenders who charge a percentage penalty for early payoff of the loan. That sucks. Good Luck.
The most important thing to look for is a loan officer who is more interested in helping you accomplish your financial goal than how much they are going to make on your loan. These are usually people who see themselves as consultants rather than salespeople. They don't try to draw business by loudly declaring they can do anything and have the lowest interest rates. Instead they ask a lot of questions so that they can understand what you are trying to accomplish and then explain all of your options and the pros and cons of each so that you can make informed decisions. They understand that this is YOUR loan, the decisions should be yours, and are happy to give you enough information to make those decisions. In other words, they ask what you want rather than tell you what they supposedly can do.
This does put some of the burden on you though, you need to understand what your short and long term mortgage goals are. The right originator will help you explore these questions and even bring up some that you may not have thought of before.
Choose your loan officer with the same care with which you'd choose a physician or your child's care provider. This is potentially a life long financial partnership you can create with someone who will always be there to help you maximize the benefits of home ownership.
Good luck.
Don't be looking here for a mortgage, there are several people running scams. You really do need to be careful that you are not victim of freud or identity theft.
For the rest of it, look for the same things you did the first time around, low points, and low interest.
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