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Is there such a thing as borrower’s regret, worries that cause some people to regard their mortgage refinance with misgivings? And if the answer is yes, what can be done to overcome the anxiety that borrowers sometimes feel?
In many cases what we’re really talking about is FOMO – the fear of missing out, the worry that maybe there was a lower rate or a bigger loan instead of the terms we actually got. Such worries can lead to refinancing regret for several reasons.
- Real estate refinancing involves big numbers, the type of financial decision we don’t make daily and thus a reason for concern.
- Real estate refinancing may require a review of such things as credit scores, income, and employment. That’s personal information we usually don’t discuss.
- Refinancing rates are always in flux. The “best available” rate and terms change daily if not more often, they’re a moving target but at some point borrowers must make final choices.
- Loan applications can be denied and the very thought of rejection can create unease, even if a borrower is well-qualified and the application moves quickly through the underwriting system.
The bottom line: It’s not surprising that mortgage refinancing can be a source of anxiety and for some borrowers real worry. The good news is that there are steps borrowers can take to substantially reduce such uncomfortable feelings.
To Lock or Float When You Refinance a Mortgage
As a borrower, you can lock or float your interest rate. The rate available on the day you apply is the rate you will get at closing if you lock.
Locking a refinance rate can reduce application jitters. If you float, the rate can move up or down by closing.
Here are some general locking rules.
First, the longer the lock the less likely such an option will be offered by the lender. A lock for 30 or 45 days is fairly common, often the length of time it will take to close the mortgage application.
A 90- or 120-day lock might be unavailable.
Second, what happens if you lock and rates go down? This situation is frequently at the heart of buyer’s remorse, but lenders have an interesting option, the float down.
With a float down, the borrower locks in a rate at application and has the right to get a lower rate if interest levels fall before closing. You might find, for example, that a lender will offer a one-time lock that gives you the right to get a lower rate if interest levels fall at least .25% one week before closing.
Speak with the lender for details. For instance, can you lock in a rate? How long can the lock-in last? Is there a lock-in fee? Can you get a one-time float down? Is there a float-down cost?
Third, there is sometimes a cost for locking and sometimes not. Whether there is a lock fee depends on lender policies and the length of the lock.
Generally, the longer the lock, the greater the lender risk, and thus the more likely a fee.
Fourth, locks last a given time and expire once the lock period ends. It’s important to work with the lender to assure that your application can be processed within the lock period.
For instance, have expected paperwork in hand when you first apply to refinance, including such items as several past tax returns, W-2 forms, your most recent pay stubs, the latest statements for savings, investment, and retirement accounts, etc.
Keep copies of the papers sent to the lender in case an item is lost. If the lender has a question during the application process, respond immediately so the application is not delayed.
To avoid surprises that can delay the application process, get preapproved before making a formal application.
With a preapproval, a loan officer will review your financial standing in some depth. A preapproval might look at credit reports (to find errors, older items, and issues that can be cleaned up), tax returns (in some cases it may be possible to add back (“gross up”) deductions to increase qualifying income), and other items.
With a preapproval you should get two major benefits. First, a good estimate of your ability to refinance. Second, a file with the most of the paperwork an underwriter is likely to require.
» MORE: See today’s refinance rates
Use The Loan Estimate Form
You will receive a “Loan Estimate” form after you apply for a mortgage. This three-page form – developed by the federal government – outlines the mortgage terms being offered by the lender.
Because the forms are uniform they can be used to compare loan offers as you shop around.
The Loan Estimate form describes the financing being offered in plain language, many of the costs you can expect at closing, and what costs might change. You can also bring this form to closing to compare your final loan terms with the promised terms.
Taken together, understanding rate lock options, preapproval, and reviewing loan estimate forms should do much to reduce application worries. But just in case, consider this: Lenders very much want you to succeed and will help you through the process.
After all, they only get paid for successful applications.