In the wake of the pandemic, mortgage interest rates plunged to near record highs, leading to an unprecedented boom in the mortgage refinancing industry. However, as more people rush to refinance, it’s important to remember that getting a good interest rate is only part of the goal when shopping for a new loan. .
To learn more about what borrowers should keep in mind when looking for the best refinancing rates, I spoke to Kevin Parker, vice president of Field Mortgage at Navy Federal Credit Union. Here is what he had to say:
On the important factors that consumers should consider when looking for a loan:
“There is no denying that the interest rate is important. After all, it’s a huge contributor to what your monthly payment will be, ”says Parker. “As a general rule of thumb, if you can save at least half a percentage point in interest, refinancing may be worth considering.”
That said, Parker recognizes that interest rates are only part of the story. Other important components include:
- Costs: Does the lender charge any origination fees or processing fees to cover the costs of closing the loan? What other third party fees (evaluation fees, registration fees) will you be charged during the process?
- Type of loan: Should we consider switching from a 30-year loan to a 15-year loan in order to obtain a better interest rate? Is it worth switching from an adjustable rate mortgage to a fixed rate loan to ensure a stable monthly payment?
- The lender: Parker suggests doing some research on the bank or lending institution you are going through for the loan. What type of loans do they specialize in? How much flexibility do they have with their qualification requirements?
How to receive this crucial information from a lender:
“Borrowers should ask their lender for a loan estimate,” Parker advises. “This is the official document that will list the interest rate that is granted to you, the fees that you will be charged and all the other conditions of this loan. “
However, he notes that borrowers will actually need to apply for the loan to access a loan estimate, which involves submitting your Social Security number and going through a credit check.
He recommends asking your lender if they provide an estimate of closing costs. While each lender may refer to this document in slightly different ways, Parker says they essentially provide an estimate of your fees and an interest rate without putting you on a hard credit call.
What advice he would give to potential borrowers looking for the loan:
“Comparing APRs, or annual percentage rates, is a great tool when shopping for a loan,” suggests Parker. “The APR includes the interest rate you will be paid, but also takes into account the fees that the lender will charge for the loan. This is how you can make sure that you are making an apples to apples comparison.
He also recommends being upfront and honest with your lender. He explains: “The more information your lender has, the more they can adapt your financing to your financial situation.
Finally, he suggests asking your lender how long to expect for refinancing. Like other mortgage experts, Parker points out that this refinancing boom has meant that many lenders are inundated with loan applications. Therefore, the process may take a little longer than usual.