Questions to Ask Before Refinancing

Refinancing a mortgage can be an important step in reducing your financial burden.  While it can be a good idea, it’s vital that you pick the right time as well as the proper lending institution.  Three questions that you need to ask before you decide on a lending institution include what the actual closing costs are, who covers those costs and if there are early penalties for paying off the refinanced mortgage early.

What Are the Closing Costs?

Refinancing can have just as many closing costs as a regular mortgage.  The one distinction is the fact that refinancing closing costs generally follow a much more streamlined path than traditional mortgage closing costs.  Since refinancing also takes less time than forming a traditional mortgage, these costs are also easier to miss.  They can be anywhere from $2,000 – $5,000, depending on what is included.  You will also want to make sure that you know what the closing costs include and whether excess tax fees or other state and local fees also apply.

“I’m going to refinance my mortgage”.  little gold lies… 219365 by paloetic, on Flickr.  This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.

Who Covers the Closing Costs?

Don’t assume that you will have to cover the closing costs.  It’s quite common that you will have to pay for them, but this is not always the case.  See if you can negotiate your way around them.  If you cannot, you may also want to see if you can get the money to cover that costs.  If you decide to follow the mortgage refinance track, you need to make sure that you know precisely who will cover the closing costs.  Even if you cannot convince the lending institution to cover the added costs, you may be able to get enough added to the total refinance amount to cover it.  Otherwise, you’re going to have to factor in those added closing costs to make the refinancing official.

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Are There Early Pay Off Penalties?

Just because you get your house refinanced doesn’t mean that you will not face any other penalties.  In particular, you need to check to see whether there are any early payment or pay off penalties.  Sometimes these are referred to as early redemption charges.  They apply in situations when a buyer makes all of the payments early.  Most of the time, the penalty is the equivalent of all the interest that you would have otherwise paid if you had made the regular payments as established.  Whenever possible, you need to avoid these kinds of lending arrangements.  Keep the right to pay off the agreement any time you have the money.

Before you decide to refinance, you need to make sure that you ask the right questions.  The first two questions that you must ask are what the closing costs are and who will cover them.  You may be able to negotiate on these two.  You will also need to find out if any early payment penalties apply.  Such a penalty can actually reduce your ability to save money in the long term, and you will need to make sure that you avoid these whenever possible.