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Five Top Ways to Save on Your Mortgage Refinance

Refinance with Your Current Lender

Your current lender might be able offer you a good deal and waive some processes and fees. If the lender servicing your loan is the one that funded it, you have an excellent chance to claim some savings--in the form of waived origination, processing, appraisal, credit, or closing charges. Just know that your lender isn't terribly anxious to replace your 6.25% home loan with a 4.75% refinance--it may take a while to actually get the thing done, and you won't be the highest-priority client. If your current lender approaches you with an offer to refinance, request a Good Faith Estimate (GFE) with the interest rate and fees. Often, mortgage lenders offer current borrowers low-cost refinance deals to prevent their going elsewhere, but the rate is likely to be higher than what's available on the current market.

To negotiate the best deal with your lender, get quotes from other mortgage refinance lenders first. Compare the GFEs and the rates and costs involved. Then, call your lender and ask for your payoff amount. Most mortgage companies have customer retention programs, and you'll find that your lender may spring into action when you request your payoff amount. They'll probably offer to refinance you, and they'll know they're competing for your business. Then see if they can do better than the other companies you've already checked with.

Refinance with a HARP

If you haven't shopped for a mortgage in a while, you may be surprised at the risk-based pricing adjustments Fannie Mae and Freddie Mac lenders add on to loan fees today. Extra charges for credit scores less than 740, condominiums or manufactured housing, cash out, investment property, second homes, interest-only features, ARMs, or 40-year terms may shock you--and that goes double if your loan-to-value is high. With a HARP refi, however, if your home value and credit scores have slipped a bit, you can still refinance to a lower rate, and the additional fees are limited to 2%. Your current loan has to be with Fannie Mae or Freddie Mac to qualify, but you can owe as much as 25% more than your home is worth and still get refinanced. Best of all, if you don't have mortgage insurance on your current loan, you won't be required to get it on your new one--even if you owe more than 80% of your home's value.

Coming Soon: Fannie Mae Streamline Mortgage

Fannie Mae is planning to offer a streamlined refinance for homeowners with Fannie Mae loans starting April 2010. You'll have to get approved through the same Desktop Underwriter (DU) software used to underwrite HARP refinances (easier criteria). However, you'll need 20% equity to get to take advantage of every available discount. Ask about the new Fannie Mae DU Refi Plus when you shop for your next home loan. If your current mortgage is serviced or owned by Fannie Mae, you may get an easier and cheaper refinance.

Ask Your Title Company for a Short-Term Rate

Title insurance companies don't advertise it, but they often offer discounts on title insurance and escrow services for senior citizens, first-time buyers, and people in certain professions--and a "short-term rate" for a property that has been resold or refinanced within the last five years. Title companies often give discounts when both the lender's and owner's policy are purchased concurrently. Discounts usually range from 5% to 30%--don't forget to ask for them. Shop with other companies first before asking your title company for its best rate, letting them know that you used them for your last transaction.

Consider a Shorter Mortgage Term

The interest rate on a 15-year mortgage is about half a percent lower than the 30-year rate. And your mortgage payment might not even increase that much if you have already been paying on your loan for a number of years--try running the numbers through a mortgage calculator and see. Another way to benefit from a shorter term and lower rate is by refinancing to a 5/1 hybrid adjustable-rate mortgage (hybrid ARM). This loan's interest rate is fixed for five years before converting to an adjustable-rate mortgage. Rates on 5/1 ARMs are generally 1% lower than for comparable 30-year fixed-rate mortgages. This offers great savings to those who don't intend to keep their homes for many years. The payment on a $400,000 loan at 4% is $1,910--$237 a month less than the 30-year loan at 5%, for a savings of $14,220 over five years.

Lowering your interest rate isn't enough if you want to maximize your savings when you refinance. Getting the best mortgage rate and the lowest fees means doing comparison shopping, asking the right questions at the right time, choosing the best mortgage term, and maybe being a little pushy.

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