THE state of Tennessee has no dearth of mortgage refinance lenders and brokers. Visit the web, type “mortgage refinance in Tennessee” as keywords in a god search engine like www.google.com, and hundreds of website addresses will crowd your screen, each offering ‘best services’ and ‘lowest rates’ even if your credit rating is poor. It’s almost like saying:
‘Are you guilty of murder? Don’t worry. We can have you declared not guilty’. On a more serious note, mortgage refinance options are aplenty in the competitive market of Tennessee, but promises made by lenders and brokers must be taken with a pinch of salt.
This article will help you differentiate between claims and reality in the complex world of mortgage refinance.
Low rates are usually the most touted selling factor not only in Tennessee but everywhere in the United States. But remember one cardinal truth: the lowest rates advertised are applicable to people with very high credit ratings. Most people have average to below-average ratings, so the interest rate applicable to them will be proportionately higher.
What is the important to you is not the ‘lowest rate available in the market’ but the ‘lowest rate to which I am eligible’. And your eligibility depends on your credit rating – the FICO ratings being the most widely used by mortgage lenders in the US.
Quick-fix of poor credit score
Noting like this exists in the United States. Your credit rating does not immediately improve if just start paying your dues in time from today after a poor payment record until yesterday. It is your payment history that counts. Of course, a poor credit score is not a hopeless situation.
You can still get a mortgage refinance loan (after all, if push comes to shove, the lender will just auction off your house to recover its dues), but – as said above – at a higher interest rate. There are ways to expedite your credit rating improvement process but, rest assured, it cannot be done quickly.
True cost of refinance
Strangely, though everyone knows that interest rate by itself can be a highly inaccurate indicator of the true cost of a loan, lenders and brokers continue to use interest rate as if it is the USP of their offer. The fact is that you are interested in the actual cost of your refinance loan, not just the interest rate, which is just one of the many cost-heads involved.
The other cost-heads include broker’s commission, property evaluation charges, points that may have to be paid, processing fee and, last but not the least, the penalty you will have to pay to the lender of our original mortgage loan for premature termination of that account.
These are not negligible costs. So, if you turn a blind eye to these costs and get carried away only by low interest rates, you will be in for a shock as your refinance efforts reach fruition.
The indicator of the total annualized cost of a mortgage or mortgage refinance loan is called ‘annual percentage rate’ or APR of a loan. So, while interest rates deserve a cursory glance, the APR is what you should go by. And insist on.
Points are payments made by the borrower to the lender to reduce the monthly repayment amount. A point is equivalent to 1% of the amount of loan. Unlike in purchase mortgage loans (i.e., the original mortgage loan), points in refinance loans usually have to be paid in a lump sum and staggered across a period of time.
Not all lenders in Tennessee insist on points. But it is good if you can pay points since it reduces your repayment installments proportionately. If your refinance deals gets you a cash-out, and if you don’t need the cash for any immediate purpose, it’s batter to inject it as points into your refinance account instead of spending it on yet another lazy holiday. This of course is a matter of personal perception.
When refinance makes sense
In a competitive market, the customer can find himself having paid the broker, lender and other-service providers, while himself not or negligibly benefiting from a refinance deal. You must ensure that a refinance deal makes sense to you. In what way it can benefit you depends on your own situation. But you must benefit more than nominally if you opt for mortgage refinance.
Otherwise, better not opt for it. The bottom line benefit is that mortgage refinance must reduce your mortgage payments with immediate effect or over the medium-to-long term, or get you a lump sum of cash immediately, or increase or decrease the duration of your mortgage commitment depending on your financial situation.
How to get expert advice
Don’t rush to your nearest mortgage lender or broker the moment the refinance idea hits you. Spend some time doing your homework. And you can do it by yourself.
How? Simply, log on to the Internet and visit websites such as www.mortgage.leadsgeneration4u.com, www.mortgageloan.com, www.erate.com, www.bankrate.com, and www.interest.com.
On these websites, you will find online mortgage or mortgage refinance calculators. Choose the appropriate options, and feed the calculators with the information they ask, choose a specific loan type, and click. Within seconds, you will get quotes specific to your case.
Try different loan types on different websites, and compare their results. Provided you supplied the calculators with correct details, the results obtained through them will be fairly indicative of the market has to offer you.
Once you are armed with these results, you would be prepared to have across-the-desk meetings with lenders and brokers. The websites named above, or any similar website, contain directories of mortgage lenders and brokers in the different states. Choose Tennessee and the city you are in, and you will get contact details of the ones nearest to your location.
Some websites may not contain directories, but arrange for a broker to contact you directly. Talk to three or four such service-providers, and then choose the offer most suited to our needs and requirements.
Who to pay
Lenders / brokers provide their advice without obligation from either side. So, the only broker who you have to pay is the one whose offer you finally accept – unless you agreed to anything to the contrary with others whom you consulted.
You don’t have to pay the lender anything commission since their fees will be included in the processing charges. And the broker’s commission in Tennessee varies from 1% to 10% of the total amount of loan: better credit score means lower broker commission, and vice versa.
The mortgage refinance market is not a simple market. It can defy the understanding of many uninitiated people. This is because there is no one package or one benefit for all. Different people have different needs and it requires expertise to determine which particular offer is best for a particular person.
But, the Internet has made it amazingly easy and quick to independently gain enough basic knowledge so as to be able to negotiate with lenders / brokers with confidence.
This confidence is required to earn respect of the professional service-provider and also to subtly warn him or her than this particular customer ‘knows’ and therefore cannot be taken for granted.