When interest rates fall, homeowners typically react by refinancing the mortgages on their home, sometimes they do it with thought or consideration on whether refinancing is actually the best option to take or if it makes sense in their particular situation. Among homeowners in the United States, there is a group called “serial refinancers” or homeowners who take out new mortgage loans whenever rates drop a quarter point.
Loan refinancing is about taking out a new loan to pay off the original loan. In the case of a serial refinancer, the loan is used to pay off the last refinancing loan. Homeowners actually have the flexibility of switching loan types. If they are on fixed-rate mortgages, it doesn’t mean they cannot take out another type of loan, like a variable mortgage loan. But before switching loans, it is important that you understand the terms of your new loan.
Keep in mind that loan refinancing actually entails some upfront out-of-pocket costs, although it is possible to get a no-cost refinancing loan. Keep in mind, however, that lenders are there to make money. So if they do not charge you any upfront fees, the fees are probably incorporated into the loan, or you are being charged higher interest rates. Although there a banks that offer true no-cost loans, they are few and far between. As always, it is always good practice to compare lenders and read the fine print in your loan documents. It would also be a good idea for your to demand that the lender guarantee their good faith estimates (GFE). Although GFE’s are not required by law to be guaranteed, you can always leverage on your position as a valued client.
At any rate or guarantee, these are the costs you may need to pay with a home refinancing loan: administration, application, appraisal, beneficiary demand, credit report, delivery and courier, document preparation, e-mail doc, escrow fee, inspection, loan discount points, loan origination, loan tie-in, notary, processing, reconveyance, recording, tax service, and title policy. These are basically so-called garbage fees, and your lender might waive them if you ask. But just because you can have these fees waived, it doesn’t mean you should take out a home refinancing loan at the drop of a point, because home refinancing loans have very real drawbacks, including higher costs in the long run and a longer amortization period.