Refinance Your House - Avoid Prepayment Penalties and Other Potential Fees

Refinancing your home can save you money on interest charges while
tapping into your home’s equity. However, you can see your savings
evaporate through prepayment penalties and other fees if you don’t negotiate
favorable terms before signing a contract. While every new mortgage will
require some loan processing fees, they should be no more than 6% of
your loan. With many lenders, you can get the costs closer to 3%.

Request Refinancing Fees When Requesting Quotes

When you ask for a “good faith” estimate on refinancing rates, also ask
to see information on loan fees. This should include both closing costs
and potential future fees.

An APR includes both the loan’s interest rate and closing costs. This
is helpful when making initial comparisons of lenders. But hidden fees,
such as prepayment penalties, can cost you thousands in the future.
Before you sign any paperwork, understand what fees are part of the loan.

Only Pay Mortgage Lender for Services Rendered

With unscrupulous lenders, you may be asked to pay for services not
rendered. Your closing costs should be itemized in your loan’s contract.
If you have any questions about an item, or when the service was
rendered, ask the lender.

You should also be wary of writing a check out to a specific person.
All funds should be sent to the financial company.

The most common loan fees are for such services as lawyers, inspection,
title search, and notaries. You can also pay points to lower your
interest rate, which may benefit you in certain financial situations.

Anticipate Future Prepayment Penalties and other Fees

While closing costs are the easiest fees to look for, future fees can
also affect your checkbook. For refinance or subprime mortgages, early
payment penalties are common. In some cases, this fee is waived after a
couple of years. You may also have the option to remove it from the
contract by paying a point at closing.

Also look at fees for future conversion of your loan. For instance,
adjustable rate mortgages can be rolled over to a fixed rate for a fee. If
you are planning any future changes with your mortgage, be sure the
terms of your loan contract put you in the best position.