5 Of the Most Important Questions to Ask a Mortgage Broker When Refinancing

    Refinancing your home can be an excellent option if you would like to lower your interest rate or consolidate bills. That doesn’t mean you can’t go wrong with refinancing, as taking out the wrong loan can actually be devastating. To avoid problems later, here are five important questions you should ask your mortgage broker when refinancing.

    Is this an Adjustable or Fixed-Rate Loan?

    Adjustable-rate loans are those that offer a low initial rate, which may increase during the life of the mortgage. Fixed-rate loans on the other hand offer the same rate throughout the life of the note. When taking out an adjustable mortgage, it’s important to know what increases you can expect and when. You don’t want to be taken off guard by a rate that increases too fast, leaving you unable to pay your mortgage.

    #2. What can I Expect in the way of Closing Costs?

    Closing costs can be several thousand dollars on many homes, which is why it is important to know what they are ahead of time. You should also find out whether you will be expected to pay these costs at closing, or if they will be rolled into the amount you are refinancing. Rolling them into the mortgage may increase your payment, and will significantly increase the amount of interest you will pay over the life of the loan. Even so, rolling in closing costs might be needed if you are unable to come up with the cash up front.

    #3. What is the Length of my Loan?

    Don’t assume your loan will be for a standard 30-year term. Lenders these days are writing loans for as long as 40 years in order to make monthly payments more affordable. The problem with this is that the longer your term, the more you will pay in interest. Insist on a 30-year loan-or if possible, a 15 or 20-year mortgage, which may also come with a lower interest rate to boot.

    #4. Is PMI Required?

    Private Mortgage Insurance or PMI is a type of insurance that is added to your loan whenever your loan-to-value ratio is less than 80 percent. Just because you aren’t paying PMI now doesn’t mean you won’t have to when you refinance. If your home has decreased in value, or you are receiving cash back, you could be borrowing more than 80% of your home’s value without realizing it.

    #5. Is there a Prepayment Penalty?

    This is perhaps the most important question you should ask, as your goal should always be to pay off your loan before the end of its term. Most mortgages automatically come with no prepayment penalty, but that doesn’t mean you shouldn’t ask to make sure. Unless you have really bad credit, there is really no reason to accept a mortgage containing a prepayment penalty, so you should run if the idea is even mentioned.

    While it’s important to know the answers to these five questions, there are actually several other things you should know about your mortgage. Take time to review the terms carefully, and be sure to ask questions if there is anything you do not understand.

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