The Title Wizard

La Jolla, CA

In these uncertain times, you may be refinancing to lower your monthly mortgage payment, shorten the term of your loan, pay off credit card debt or cash out a portion of your home equity pay for travel, home repairs, a child's education, and other expenses.

If you are considering refinancing, read these helpful tips:

1. Know your credit score before you start

Know your credit score before you start the refinance process. In general, if you have good to excellent credit, you should be able to negotiate the loan application fee. This is the fee that lenders charge to process the loan. You'll also be in a better position to negotiate lower interest rates and fewer points. Points are the percentage points of the overall loan that are paid to the lender up front.

If you have had credit problems or have a low credit score, you'll need to be prepared to pay a larger down payment and higher interest rates. Or, you may decide to wait until your credit score has improved to refinance.

2. Shop for Lenders

Start shopping for a loan with your current lender. However, don't automatically assume that this lender will give you the best deal. It's possible that you'll get a good rate, since the lender knows your payment practices and already has access to your financial information. Sometimes, however, lenders take advantage of their customer's comfort level. These lenders assume that you'll settle for a mediocre rate in order to avoid researching other options.

To find other lenders, ask for referrals from friends, family members, and neighbors. Ask your bank or credit union. You can also find a list of local lenders and their rates on Bankrate.com.

3. Protect your credit history

When you contact lenders for loan information, you will be asked to complete a pre-approval application. This application will give the lender the information needed to calculate the costs and terms of your loan.

Inform lenders that you do not want your credit history pulled for the pre-approval, since each time your credit history is reviewed, your credit score is docked. Though the docking is minimal, multiple credit score inquires can add up and have a negative effect on your score.

Once you have selected a lender, allow that lender to make an inquiry into your credit history.

4. Know how to compare loans

Comparing loans can be confusing. You not only need to compare interest rates but loan fees too. Make sure that you are informed about the common loan fees detailed below and weigh them when you compare your loan options.

You can use Bankrate.com's refinance calculator to compare the full cost of each loan.

If you are deciding between lenders with similar interest rates and fees, contact each lender and ask questions. By asking questions, you will get a feel for the customer service that each lender provides. Choose the lender that offers the best service.

• Application fee 
  The fee that the lender charges for processing the loan.
  This fee may be a flat fee. Often, however, it is a percentage of the loan amount.
   This fee may be charged for to cover the incidental expenses associated with processing the loan (i.e., the credit report, property appraisal, etc.), or it may be in addition to those fees.
   This fee is usually non-refundable.
  
  Points

These fees are 1% of the loan amount. So, a $350,000 loan with one point would have a loan point fee of $3,500.
 Point fees can often be paid to lower the interest rate on the loan.
 Some lenders allow points to be included or "rolled up" in the total loan amount.
 Points are paid before or during closing.
 Points are tax deductible in the year that they are paid (only if not rolled into the total loan amount)

Lock-in fee  Lenders charge this fee to lock in an interest rate while your application is being reviewed.

Closing costs These fees are almost always included in the lending process, though the amounts vary from lender to lender.
 title search
 document preparation
 wire transfer fees
 recording fees
 title insurance fees
 appraisal fees
 attorney fees
 prepaid interest

5. Determine your break even point

No matter what loan option you choose, refinancing costs money. You may be saving $90 per month with your new mortgage payment. But, you also paid several thousand dollars in closing costs and loan processing fees when you refinanced.

That may be okay if you are planning to stay in your house for several years, but if you plan to relocate in the near future, you may not realize your savings.

For example, if you paid $3,000 in closing costs, you need to make 34 monthly mortgage payments before you recoup the refinancing costs - that's almost three years.

So, before you refinance, it's a good idea to know your break even point. It's an easy calculation:

Total loan costs and fees  monthly savings amount = months to break even

You can also calculate your break even point using Bankrate.com's mortgage calculator.

6. Ask for a loan commitment letter

When you have selected a loan, be sure to lock in the interest rate. Most loan quotes come with a 30- to 60-day rate lock. That may sound like plenty of time to process a loan, but refinances can take longer.

To make sure that you get the rate you are expecting, ask the lender for a loan commitment letter that includes the interest rate and rate lock period as soon as you decide on a loan.

Be aware that some lenders charge a rate lock fee. If the fee applies, negotiate a lower fee, if possible.

If you think interest rates might decrease during your loan process, also ask your lender about a float down provision. This provision allows you to lock in at a lower rate if interest rates drop during your loan process. Your lender may charge a fee for this provision. If so, you'll need to decide if the savings you gain from the lower rate is greater than the float down provision fee.

7. Be a savvy shopper

If it sounds too good to be true, it probably is. For example, "no closing cost" loans sound enticing. But the truth is, these loans simply have hidden fees.

The fees for a "no closing cost" loan are usually wrapped up in the total loan amount. So, although you won't pay out of pocket at closing, you'll end up paying for closing costs over the full term of your loan - with interest.

8. Know your rights

The Truth in Lending Act allows you three days to cancel a loan after signing the closing documents. You can cancel a loan if you have found a better rate, if you feel you are a victim of predatory lending, or if you have second thoughts about the high cost of the loan.

The act does not apply to loans refinanced though your current lender or if the loan is for a property other than your primary residence. Other restrictions also apply. Check with a real estate attorney to determine if your loan type is covered under this act.