Are You Paying Too Much for Your Home Loan?
Home loan rates are at its all-time low. Unfortunately, many people have not done comparison shopping with their current loan. Why the need for a comparison shopping? The good deal that you got back when you originally got the loan may no longer suit your current condition. Comparison shopping can actually be free and take just a little time with the use of Internet for research.
Technically, what you'll be looking for is a refinance mortgage, more commonly referred to as just a refinance or refi. This is where a lending institution provides you with a new loan at a lower rate, and pays off your old, higher-rate mortgage. The new bank then holds the deed to your home as collateral until the loan is repaid.
A good rule of thumb is that if you can lower your interest rate by 1%, the new home loan will be worth the cost of the refinance. No loan is free, but by shopping around at sites like www.bankrate.com, you can not only become familiar with the common fees charged, but compare the fees charged by various lenders.
There is also a possibility that you as well as your home loan are qualified for an HUD (Housing and Urban Development)- backed loan through the Federal Housing Administration (FHA). If you are a veteran, you may qualify for a loan through the Veteran's Administration (VA). Many times these loans will have lower interest rates and fees than a comparable conventional loan. There will be more paperwork and the process may take longer, but the savings with these loans can be substantial. The loans are backed by the federal government, so there is less risk for the lender and that's reflected in the interest rates and fees.
Lenders or mortgage brokers are required to give you an HUD-1 or Good Faith Estimate within three days of appication. You can also ask for one when shopping around. If a lender or broker refuses to provide one so you can comparison shop, consider very carefully if you want to use them. Customer service can be critical after you close on a loan, and now's the time to evaluate that.
Fees are another consideration—and that's where the Good Faith Estimate can help you. Every lender has different names for their fees. Origination fees, Broker fees, Discount fees. . . .the list seems endless and even the HUD-1 doesn't tell you what the fees are for. However, using the Good Faith Estimate can guide you in comparing apples to apples. Regardless of what they call the various charges, they're going to be totaled at the bottom. So long as you're requesting statements regarding the same type of loan—for instance, a 30-year fixed rate at 6.0% with no points—you'll be able to see how the fees and charges compare from lender to lender.
Yes, this process can take some time, and many lenders now charge application fees to weed out the "looky loos". But comparison shopping for a mortgage, even if you already have one, can save you literally tens of thousands of dollars. Isn't a few hours of your time worth that?
About the Author:
Richard Greenwood is the co-founder of the Click 4 Group which including click4credit.com.au a credit card comparison site allowing credit card offers to be compared and also a savings account site to compare high interest savings products online.