Planning On Refinancing Your Home?
Here's An Easy Refinance Plan

As an Ex Mortgage Executive, it became apparent to me early on that most if not all clients entering the office whether by foot or by phone -- had absolutely no plan of action for their refinance.

Oh sure, they had a plan to make the most common mistakes however they didn't have a knowledgeable home mortgage refinance plan.

Let's cover some of the more common mistakes and bad questions first (briefly) and then we'll develop a simple plan for success and keep you from looking like a stupid home owner along the way to lower refinance rates.

Here are some common refinance questions you should NOT ask and some statements you should NOT make in the beginning to save yourself from appearing as if you know nothing of what you're talking about.

1. "We want one of those no closing cost mortgage refinancing options so we can save money"

Starting out with the "no closing cost" statement is a bad place to be coming from.

Why? Simply because there’s no such thing as no closing costs.

Nothing in the mortgage loan refinance world is free, so you'll end up paying out the nose over the long term because your interest rate will be higher.

The higher the interest rate, the more you pay the lender and believe me they WILL get paid for closing costs. Plus, you didn't think you were getting out of paying local and state taxes did you?

For example you can pay $3000 up front in closing costs or $28,000 over time because of a higher interest rate. Which do you think is better, paying a little up front on your new refinance or paying a lot more over the life of the refinance?

2. "Should I refinance my home loan and lower my interest rate to save money?"

Typically NO, simply because lowering your interest rate is not the only variable here. Paying $3000 in closing costs for a lower rate means a longer time before you realize the savings from a lower rate. If it takes 4 years to recover your costs and rates drop again then you might refinance and start over. Bad move. A better idea is to refinance to pull cash out of your equity and invest the loan refinance proceeds.

Note: it would be in your best interest to read a book called "Missed Fortune 101" by Douglas R. Andrew. It will most certainly change your mind about loan refinancing and refinancing transaction costs, putting you in a much better understanding about your future refinance transactions. You'll find a full version and an abridged version, the abridged version is all you'll need.

3. "We want to pull cash out of our home equity, what are your refinancing costs?"

If you are asking about costs up front, you are setting yourself up for failure.

Why? Your mortgage broker doesn't have a fixed closing cost figure to give you. If he does it's a lie simply because the real answer is "it depends".

Your closing costs are based on the final interest rate, paying or not paying points (or pre-paid interest) and costs specific to you such as state and local taxes along with fees that very from lender to lender.

Focus more on the overall picture that just asking for costs up front. See below for a better plan of action.

Here are some BETTER statements to make OR questions to ask when refinancing...

Your primary plan of action is to either know what you are talking about or fake it til you make it.

You should always start with knowing your three pillars, such as credit score, debt to income ratio and your homes value.

You can visit TrueCredit.com to get your credit score (your mortgage score will be lower, however this is a good start).

If you have credit problems and may possibly be seeking a bad credit mortgage you can visit Lexingtonlaw.com and have negative items removed quickly.

And finally know your homes value by getting your own appraisal. You can visit Appraisers.com to find a local professional.

Good question OR statement #1; (after calling a local mortgage broker, OR filling out an online form)

"Please provide us with a good faith estimate (GFE) on a 30 year fixed rate mortgage, cash out debt consolidation loan, and also show us line 824 so we can compare with other lenders".

If you've ever heard of the "unspoken" word you'll know that you made a lot of them if you used the above statement.

Here's what you REALLY said in a nutshell:

You used specific terminology such as "good faith estimate" projecting that you know the mortgage refinance lingo. You asked for a specific product such as the 30 years fixed rate loan. You used a specific loan purpose of debt consolidation and cash out. And...you were VERY specific in requiring that line 824 of the good faith estimate be shown so you can make a real loan comparison.

Asking for line 824 on the GFE could quit possibly mean the difference between getting taken advantage of or saving a ton of money on your mortgage refinance loan. Line 824 is often NOT shown and most states legally require it, however most brokers don't show it until closing. You should know it up front.

Line 824 is shown as yield spread premium or YSP, and simply shows how much the lender is paying the broker to give you that specific interest rate.

The point being, if you are paying a point of pre-paid interest (line 801) and the lender is also paying the broker 1 point (line 824), then you could probably get an even lower refinance rate by showing that the broker is double dipping (i.e. getting paid one point twice, from you AND from the lender as an example).

Also, if there is NO fee on line 801 AND no fee on line 824 you might ask how the broker is getting paid. This is where the bait and switch usually happens and you would see it coming.

Knowing that one point can put you in control of the entire refinancing process.

This allows you get away from the mentality of refinance quick and get into refinance smart.

Good question OR statement #2; (once you've chosen a broker that will work with you)

"We like your refinance offer, can you lock our interest rate for a 30 day period (15 if you think you can move quickly) and fax or email us the rate lock confirmation?"

What you've communicated here is; you know what you're talking about.

In all honesty, refinancing your mortgage is not that complicated if you have a solid refinance plan and know (or act like you know) what you're talking about. Your mortgage broker should be able to lock your interest rate and transmit the rate lock approval directly to you within an hour. You MAY be advised that locking is not in your best interest because rates are dropping or that your loan type does not require a rate lock, and that's fine however that won't always be the case.

Beware, your interest rate lock confirmation should show a loan number, the lenders name, the interest rate and either the YSP which is what the lender is paying the broker or the cost of that particular rate which is the points or pre-paid interest you will pay. It can get confusing however pay attention to those points and you'll be way ahead of the game.

In conclusion, refinancing isn't that hard -- unless you start the loan refinance by asking bad questions. Just plan to be in control of the refinance loan process and know what you are talking about along the way by following the recommendations above.

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