A lot of homeowners are looking to refinance home loans. And it should come as no surprise considering that home mortgage rates are at historical lows.
But, I think too many people choose the knee-jerk reaction of just going and signing up for refinancing without following some basic steps to protect themselves and their investments.
And, by the way, this article isn't just based on theory. It's based on my own experience in the past six months of refinancing my own mortgage. One experience was real bad. one, was real good.
The difference between getting a good outcome and a bad one may be following some of the steps I'm going to outline for you below.
Shop Around for Competitive RatesI know. Everybody does this, right? Actually, no.
Sometimes you may think that because you have a mortgage with a certain company that, to keep your business, they'll go above and beyond to give you the best rate.
That is definitely NOT true.
Point in fact is that when he had our 'bad' mortgage refinancing experience we went to our current mortgage holder. Told them what we wanted to do and they were really excited.
We knew some other people who were getting their mortgages refinanced and we knew their rates and this sounded really competitive - so we signed up.
Soon after we did that we discovered that the great rate we were quoted was contingent upon certain criteria. Namely, our real estate appraisal.
Now, while getting a better rate based on a real estate appraisal is certainly fair - we should have been told that from the get go. But we weren't.
Secondly, we were told that this particular mortgage company (which is a giant in the industry - especially on the secondary market) would take care of all the paperwork and that we had 60 days to get the appraisal done and all the paperwork in.
As if almost in passing - they told us that if for some reason it went out beyond 60 days that we would incur a $500 fee. Of course, they said that almost never happened unless we didn't get the appraisal done fast enough.
So, the very next week we got our appraisal scheduled and within 20 days had it done. We also got some paperwork from the mortgage company that asked for some feedback and other various information from our bank.
So, we passed that along to our bank and waited.
Another 25 days passed and we didn't hear anything.
About day 50 the mortgage company calls and told us that they had not received anything from our bank. We immediately called our bank up and tried to get down to the bottom of what was going on. Honestly, we assumed that our bank had screwed up.
The representative at the bank assured us that she had indeed sent the paperwork to the mortgage company and that she had records to prove it.
To make a long, painful story short - we played phone tag with a very large, very unaccommodating mortgage refinance company for the next 10 days. They denied the banks story and said they never received the paperwork even though the bank had records showing that they had sent the papers to the right department.
Essentially, our 'no problem' refinance dream had turned into a nightmare.
The next 30 days was spent with us arguing with the mortgage company over the $500 fee. After all, we had done what they asked. The bank had done what they asked. But because of their inability to track paperwork properly within their own company they wanted to hit us with a substantial fee.
We finally got a hold of someone at the company who was on our side and understood our dilemma. She talked with her supervisor and got our $500 fee waived.
Or, so we thought.
The next month our credit card was charged $500!
We did manage to get that charge waived. But it took a lot of phone calls and unneeded anxiety on our part because of their incompetence. Not only that, the woman who had been helping us the last month 'moved on' and we had to start all over with someone who was far less helpful.
Now, we knew rates were still very good so this time we actually shopped around and asked all the right questions.
We also went with a different mortgage company.
They were able to offer us 4.375% fixed rate and were very upfront about what we had to do to lock that rate in. They also informed us about the appraisal requirements and so forth.
The point of our experience is twofold: shop around for the best mortgage rates but also couple that with reviews of the company you are going with and asking the right questions.
Size Does NOT MatterAnother mistake we made in our first home mortgage refinance was assuming that because a mortgage company was big and specialized in only mortgages that they would somehow be better.
In fact, not only did we get a 0.5% better rate with our smaller, local-only bank but this bank did everything under the sun - not just home loans.
I know this probably falls back into shopping around but when you do don't have any preconceived notions about what a bank can and can't do well.
Easier to Deal WithAs an added benefit I would argue that finding a local bank to refinance your home through is much better for you should something go wrong.
While nothing did go wrong with the small, local bank...if it had, we only would have had to drive 20 minutes and meet them face to face at their office rather than calling some impersonal call center 2000 miles away with a low level customer service rep and getting sent through phone tree hell trying to get an answer.
Mortgage Refinance FeesA very important area that you'll want to make sure you have your bases covered on is the amount of fees you'll be required to pay at closing and during the refinance process.
The particular bank or mortgage company that you are dealing with is required to disclose these fees to you.
We found that the fees were very comparable.
Of course, that depends on how many 'points' you are paying and what sort of deal the particular refinance company is offering.
Again, while the points I've outlined above may not be groundbreaking by any stretch of the imagination they may very well help you avoid some frustrating and even expensive mistakes.
I know they helped us after our first painful experience trying to refinance our home.