Why Shop Around

Why should you shop around for better refinance deals?

Refinancing a home is a huge expense and surely needs to be well thought out before you take the decision on which policy to look for. There are also many other factors which need to be considered,  which can either reward you with exorbitant savings or result in colossal losses. One of the most important of these factors is to keep your eyes open for the different deals. It is absolutely obvious that unless you try to get information, you will not be aware about a lot of different lenders and financial institutions and if you are ignorant about the various different deals they have to offer, you may miss out on opportunities which could have not only reduced your overall costs in the option of refinance but may have also helped you in figuring out various other financing options at lower costs.

Most people suggest that it is a good idea to keep a loan for two years to recoup the closing costs, but there is no such hard and fast rule. Though it depends a lot on the policy taken and the interest rate you are being charged, but in most cases, even if you have five years left on your loan, the refinancing option may not be too lucrative, since you have already paid most of the loan’s interest. Nevertheless, you should consider the costs involved and the amounts still left and then make a decision based on the following factors of comparison.

1. Evaluation of your profits or losses

The first thing to evaluate is whether the new loan is going to bring profit or not. You may get profits if you are moving to loans which have reductions in the interest rates or even improvements in the mortgage tenures. By calculating the amount that needs to be paid considering the current mortgage scheme for the remaining period and comparing it with the terms and conditions of the new loan after refinancing should be done. Care needs to be taken that you also consider the hidden costs like application charges and the prepayment penalty if applicable in this comparison. If the calculations show that the new scheme will result in savings, then it is worth pursuing.

2. Comparing Lender Fees and Hidden Charges

Though the new mortgage interest rates seem to be better and there may look to be an improvement in the tenure, do not forget to overlook the lender fees. Most people assume that the vendor fees are the same, but this is not true, and these hidden charges vary from lender to lender and sometimes from even policy to policy. Though initially, between the different policies you are considering, you may see the rate of interest, but in a long run, the lender’s charges may result in a huge differential between the policies. Thus for a proper comparison, not just the rates and fees of different packages need to be seen, but you should try and compare the APR instead of the direct rate of interest that provides the loan its true cost.

3. Online research options

The quickest, fastest and probably the most comfortable way to find out the different schemes and the different lenders from the comforts of our living room is by using the power of internet. With the aid of Information Technology, you will not only be able to find out about the different vendors and their offered deals, but you will also be able to quickly compare the various policies and in the process even save a lot of time and effort. Do remember, that it makes good sense to invest some time in trying to find out a good deal, since the mortgage refinance is for a very long period of time, and even a small difference in either the interest rate or the tenure can help you save thousands of dollars in the long run.

The online comparisons will not only open your eyes to the different vendors, but also expand your options in the selection of one of the many different mortgage options available for financing. Depending on your short term and long term goals, and other parameters like monthly cash inflow and expected expenses, you can look among the various deals in categories like ARM, fixed-rate or hybrid refinance options that can increase or decrease the loan terms as well as amount to be paid as loan installments. Once you have a clear idea about the various options available, you can make an informed decision by weighing the pros and the cons and select a policy which is the best suited to you.

There are also other options like getting a line of credit or home equity loan, which are available without the closing costs of a traditional mortgage; however neither will they bear any impact on the principal amount nor will they lower the rate on your principal. To remind you again, there are many reasons for which are refinancing your home but one of the most important reason is the idea of saving money. Hence, a lot of prudence should be exercised when looking at the different deals and short listing the good ones among the mortgage refinance options available to you.

Another thing as mentioned before to be taken care of is to look for the hidden charges and the fees in the deal which you finally select. It may so happen that the lenders may be assuring you that they are giving you the best interest rates and the lowest deals, and it may appear to be attractive as well, but once the other additional charges start getting added later on, the deal doesn’t really remain as lucrative as it used to look before.

However, there are a lot of devices and services which can help compare and calculate your refinance options and some of them are as follows.

A. Mortgage or refinance calculator

There are tools called mortgage calculators provided online and through these means you would be able to evaluate the exact cost of your refinancing and thus compare them.

B. Forums and reviews

Forums and Reviews are good benchmarks to determine the credibility of the various lenders and also the various schemes which are available. Understandably, some of the reviews may be skewed due to the personal experiences of the people involved, and yet, they can give you a bird eye view on what to expect. It is always worth taking note the fact that a personal or experienced opinion is more viable rather than depending blindly on the lender.

C. Comparison sites

Other than the above two means, the third and probably most important mean to compare the different vendors and policies are the online sites which have built-in comparators and they help in comparing the rates of interest and the services of the different lenders. These sites can get quotes from different vendors which can then be compared to generate results and reports with details on what to expect in each deal. This is the fastest, easiest and the most hassle free method to find out the different possibilities and the get an estimate of the cost, which would be incurred on your behalf, so that you are able to get lucrative deals from these refinance options, without wasting too much time and money.

Updated: Jan 7, 2011 10:13