Refinancing? Five Questions to Ask Your Mortgage Lender

The world of mortgage loans is foreign to the majority of us. It's riddled with its own jargon, rules and unique mathematical formulas. To make your visit to this strange planet a beneficial one, arm yourself with knowledge. Even though you've already been through the mortgage process once, it's easy to forget. Here are some questions you'll want to ask when shopping for a new mortgage.

Question 1: How much are the closing costs?

Closing costs generally total two to five percent of a home's purchase price. They're not part of the down payment, and include such charges as an appraisal fee, credit report fee, title insurance, and prorated property tax. If your first mortgage wasn't obtained too long ago, you may be able to use some documents from your original closing. One thing you'll particularly want to watch out for is points, which are lender's origination fees. You'll receive a Good Faith Estimate well before you close the loan. Be sure to scrutinize it.

Question 2: What are the options for locking in a rate?

Some lenders give you the option of either locking in a rate or "floating," which means waiting for rates to potentially get lower. "Floating" can be tricky; be sure to ask your lender for details.

Question 3: Is there a prepayment penalty?

This is a fee, sometimes quite sizable, designed to discourage you from refinancing your loan at a later date. Try to avoid these, if at all possible. Also, make sure that the mortgage you're refinancing doesn't have one, or you may be in for a surprise when you pay it off.

Question 4: Will I need to escrow insurance and taxes?

Some lenders give you the option of escrowing your own insurance and taxes. You may not like the extra monthly payments that you've been giving the bank for this purpose, and are hoping a new lender will let you handle them yourself. There may be an added fee for this privilege, so make sure you check.

Question 5: How long will it take to close?

Closing times vary by lender. If you need to close the loan sooner than later, make sure that your lender can accommodate you.

So what do you do now that you're armed with knowledge? Heed the sage lyrics of Toni Tennille, who crooned, "My momma told me: 'You better shop around.'" Start shopping for lenders and ask them the questions listed above. They'll help you to make an apples-to-apples comparison that should ultimately result in a loan that's music to your ears.