Low mortgage rates are still around, so it may be worth exploring whether refinancing can save you money. Even if you don't cut your rate by a full percentage point, you could benefit.
The 30-year fixed-rate mortgage recently averaged 3.7 percent, according to HSH.com, which surveys mortgage lenders weekly. To pay off your mortgage more quickly, consider refinancing to a 15-year loan, which was recently 3.1 percent. Your monthly payment will be higher, but with the shorter term, you'll save thousands in interest. Another option: Ask lenders for a term equal to the remaining years of your existing mortgage.
If you have an adjustable-rate mortgage and your fixed-rate period will end soon -- and you're not comfortable with a rate that adjusts annually -- refinancing to a fixed rate may make sense if you can lower your monthly payment and you plan to stay in your home long enough to recoup closing costs. But if you plan to move within the next five to seven years, you may benefit by refinancing to another ARM (or even from a fixed-rate loan to an ARM) with a fixed-rate period that matches your expected tenure. The average rate on a 5/1 ARM was recently 2.9 percent.
Assume the lender's origination fee and third-party costs (including the cost of an appraisal, title search and so on) will be 1.5 percent to 3 percent of the loan balance. If you have enough equity, you can add the closing costs to your loan balance and finance them. Or you could pay a higher interest rate in exchange for a lender credit that offsets closing costs. (You can determine your payment, savings and break-even point with the refinance calculators at hsh.com.)
Check rates with the originator of your existing loan; your current loan servicer, bank or credit union; and an online lender, such as Quicken. Another good source is www.mortgagemarvel.com, where many smaller banks and credit unions advertise their rates. Rates and lender credits can change daily or even every few hours, so try to call all prospective lenders the same morning.
You're looking for the best combination of rate (including discount points, which are equal to 1 percent of the loan balance) and closing costs. To compare apples with apples, ask for a rate quote with no points that reflects how you want to pay your closing costs.
Ask the lender you choose how long it will take to close the loan. If the lender says it can do it in 30 days, take a 45-day lock on the interest rate to leave yourself some wiggle room in case closing is delayed, says Keith Gumbinger, of HSH.com.