How to Pick a Mortgage Refinance Company

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You've waited, debated, and made the decision. You're going to take the plunge and refinance your mortgage. Congratulations! Now what?

Whether you're consolidating debt, lowering your interest rate or using some of the equity in your house, you'll need a reputable place from which to borrow money. While that may see like a no-brainer, in actuality, many people are now in foreclosure because they didn't do their research upfront. Too often people simply walk into the place with the lowest interest rate, sign a stack of paperwork and walk out with your money. While that may be possible, it is definitely not the wisest thing to do.
Once you sign off, you will have a large financial obligation that will last in the neighborhood of thirty or more years. By the time you pay this loan off, your grandchildren may be hitting you up for money. So while you may want to get a jump on things, now is the time to slow down and consider all your options to ensure you make a good decision.
How will you borrow the money? Will you use a bank? A mortgage refinance company? A mortgage agent? Do you know the difference? Here's some information that will give you some idea of how each of the three entities operate.

  • Bank--A bank uses its customers' and stockholders' money to lend out, according to very strict guidelines. The ultimate goal is to make a profit for the stockholders.
  • Mortgage Refinance Company--In general, this type of lender uses investors' money to lend out. These investors will generally be stockholders in the company and are looking to make a nice return on the investment.
  • Mortgage agency--These are generally "middle men". The company has no lending capital of its own. Rather, it takes a fee for finding you the best deal. Keep in mind that there are very reputable agencies and there are very shady ones, as with any other business.

Considering how many banks, mortgage refinance companies and mortgage agencies there are, making a decision about which to use will be highly personalized. What is actually more important than which sort of company to use is the research you do in other areas. Things you need to know include:

1) Do your research about mortgages in your area. What are the going rates? If you walk into any company blindly, that company has the potential to take advantage of you. However, if you know the going rate is 6.5%, you'll think twice before accepting a rate of 9%.

2) Know the jargon. Do you know what a point is? How about an ARM? Do you understand the potential need for an escrow account? What about LTV?

  • Point--1% of the mortgage amount, points can be used to buy down the interest rate you pay over the life of the loan.
  • ARM--Adjustable Rate Mortgage. Starts with a low interest rate but can and usually does go up every year as interest rates fluctuate.
  • Escrow account--Many entities want to ensure you don't lose your house for nonpayment of taxes, so they collect an extra amount every month, put it into escrow and pay the taxes for you.
  • LTV--Loan to Value. How much are you taking out in a mortgage loan versus how much the house is worth. Many companies will charge a premium, or simply refuse the mortgage, for an LTV of more than 80%.

3) Is the mortgage refinance company, bank or agency reputable? Do some checking around. Are there a lot of complaints about this particular company?

  • Ask your friends if they've refinanced recently and who did they use? Word of mouth is often a good way to find someone to work with. It can be a great method to discover if there have been complaints against a company.
  • Make sure you understand the fine print in any offer. Some places will hook you in with a fantastic rate and only later do you realize that you'll be paying for a large mistake for the rest of your life--literally.

Once you think you've narrowed down the list to two or three companies, you'll need to meet with the loan officers or mortgage brokers. Get a quote on the closing costs, find out what steps are involved in completing the mortgage, and most importantly, discover whether you trust this person to have your best interests at heart.

Profit is going to be the prime motivation for any mortgage refinance company, bank or mortgage agency. Yet that doesn't mean you should just work with anybody who will give you a low rate. If you walk into a place and your skin is crawling, the extra quarter percent interest you're saving is probably not worth the potential aggravation.

How quickly does the person or persons involved respond to your questions? If it takes a week for someone to return your call, the business is likely not going to value you as you would want. Do they take time to answer all your questions? If you don't understand the fine print, they should be willing to sit down with you and explain it point by point.

Remember, you're going to sign off on and initial a whole slew of papers before you get your money. Most of these papers will say that you fully understand what you're getting into and that everything has been explained to your satisfaction. Don't be afraid to hold the business to that. Once you've signed and then discover a problem, it's too late.

Most important to remember is this: when deciding on a mortgage refinance company, bank or agency, you are calling the shots. While you're borrowing the money, you are the customer and the customer is always right.

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