Questions to Ask Your Lender When Refinancing Your Mortgage

Refinancing a mortgage involves replacing an existing home loan with a new one, often to secure a lower interest rate, change the loan term, or convert equity into cash. Asking a lender detailed questions ensures a comprehensive understanding of the new loan’s structure, associated costs, and ongoing management, leading to an informed choice.

Questions About Loan Options and Terms

Understanding loan options and terms is paramount for aligning a new loan with personal financial objectives. Ask about available interest rates, such as fixed-rate or adjustable-rate mortgages. Fixed rates offer predictable monthly payments over the loan’s life, while adjustable rates may have lower initial payments that fluctuate with market conditions.

Ask how current market rates influence the specific rate offered and if a rate lock is available. A rate lock secures the quoted interest rate for a set period, typically 30 to 60 days, during the application process. Understand the Annual Percentage Rate (APR), which represents the total loan cost over its term, including the interest rate and most lender fees. The APR provides a more complete picture of the loan’s overall expense than the interest rate alone.

Inquire about available loan terms, such as 15-year or 30-year options, to see how different durations affect monthly payments and total interest paid. Shorter terms generally mean higher monthly payments but significantly less interest paid. Longer terms offer lower monthly payments but accrue more interest. Also, ask about “points,” which are fees paid to the lender. Discount points reduce the interest rate, while origination points are for processing the loan. Each point typically costs one percent of the loan amount.

Lenders offer various loan products, including conventional loans, those backed by the Federal Housing Administration (FHA), or loans for veterans guaranteed by the Department of Veterans Affairs (VA). Some lenders also provide jumbo loans for amounts exceeding standard conforming limits. Understanding these different loan types helps determine which product best suits individual financial circumstances and property value.

Questions About Fees and Closing Costs

Understanding the various fees and closing costs associated with refinancing is important. Origination fees, charged by the lender for processing the loan application, typically range from 0.5% to 1.5% of the loan amount. Appraisal fees for independently valuing the property cost between $400 and $700.

Title insurance and search fees protect both the lender and the homeowner against claims to the property’s title, verifying clear ownership. These costs can vary, often between $700 and $1,500. Attorney or escrow fees cover legal services or the coordination of the closing process. Recording fees are charged by local government entities to officially register the new mortgage document.

Ask about prepaid expenses, such as property taxes and homeowner’s insurance premiums, which may need to be paid upfront into an escrow account. These amounts typically cover several months to a year of coverage. A credit report fee covers the cost of obtaining the borrower’s credit history.

Lenders are required by federal regulations, specifically the Truth in Lending Act and the Real Estate Settlement Procedures Act, to provide a detailed Loan Estimate (LE) within three business days of receiving a loan application. This document outlines all estimated costs and terms of the loan, allowing borrowers to review every line item before proceeding.

Questions About the Application and Approval Process

Navigating the application and approval process for a mortgage refinance involves understanding the specific steps and what is expected from the borrower. Ask the lender about the precise financial documents required for the application. This typically includes:
Recent pay stubs covering the last 30 days.
W-2 forms for the past two years.
Federal tax returns for the last two years.
Bank statements for the most recent two to three months.

Understand how a hard credit inquiry might affect your credit score. While a temporary dip may occur, the impact is usually minimal if the borrower has a strong credit history. Ask about the typical credit score range required for approval, which often starts around 620 for conventional loans.

Inquire about estimated processing timelines from application submission to loan closing. A refinance process commonly takes between 30 and 60 days. Ask how frequently and through what channels the lender will communicate updates regarding the application’s status.

Ask about potential underwriting conditions or contingencies that might arise during the review process. Underwriters may ask for further documentation or explanations regarding income, assets, or credit history. Discuss factors that could lead to delays or even a denial of the loan, such as significant changes in employment or credit. Confirm whether any upfront application fees are required.

Questions About Post-Closing and Servicing

Once the mortgage refinance has successfully closed, understanding the post-closing and servicing aspects of the new loan is important for managing ongoing payments and inquiries. Ask who will service the loan. This determines who will collect monthly payments, manage the escrow account, and handle customer service inquiries. It could be the original lender or a third-party loan servicer.

Inquire about the various payment methods available, such as online portals, mail, or automatic payment deductions from a bank account. Understand how the escrow account, which holds funds for property taxes and homeowner’s insurance, will be managed. Ask how adjustments to the escrow account are made based on changes in property tax assessments or insurance premiums.

Ask about options for making additional principal-only payments and how these payments are applied to the loan. Making extra principal payments can significantly reduce the total interest paid and shorten the loan term over time. Knowing the process for making these payments ensures they are correctly applied to reduce the loan balance.

Establish whom to contact for general questions or issues after closing, such as payment inquiries, escrow adjustments, or requests for loan statements. Understand the types of statements or communications to expect, and their frequency, to remain informed about your loan status.