When I should refinance?

Refinancing may be a viable option if the interest rate difference is 2%. A modest reduction in the loan rate can still trim your monthly payment. The significance of such savings will depend on your income, budget, loan amount and the change in interest rate. Your trusted lender can help calculate the different scenarios.

How much will it cost me to refinance?

In addition to an application fee ($250-350) you will likely have to pay an origination fee (typically 1% of the loan amount). In many cases you will have to pay much of the same costs that you had to pay with your current home loan (title search, title insurance, misc. lender fees, etc.). The sum of these fees could cost you up to 2-3% of the loan amount. These loans will charge a slightly higher interest rate, so consult with a lender to determine if it would still make sense to refinance.

Should pay points to lower my interest rate?

If you plan on staying in the property for at least a few years, paying discount points to lower the loan's interest rate can be a good way to lower your required monthly loan payment (and possibly increase the loan amount that you can afford to borrow). If you only plan to stay in the property for a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front. Consult with your lender to see how long it would take for your monthly savings to recoup the costs of the discount points.

What does it mean to lock the interest rate?

Mortgage rates can sometimes change dramatically from the day you apply for a mortgage loan to the day you close the transaction. If interest rates rise sharply during the application process, it could make the mortgage payment larger than previously thought. To protect against this uncertainty, a lender can allow the borrower to 'lock-in' the loan's interest rate, guaranteeing the borrower the prevailing loan rate for a specified period of time (often 30-60 days). A lender may or may not charge a fee for this service.

Should I lock-in my loan rate?

No one knows for sure how interest rates will move at any given time, but your lender may be able to give you an estimate of where it thinks mortgage rates are headed. If interest rates are expected to be volatile in the near future, you may want to consider locking your interest rate if rising rates will no longer allow you to qualify for the loan. If your budget can handle a higher loan payment or if the lender's lock fee seems excessive for your means, you might want to consider allowing the interest rate to 'float' until the loan closing.