What you need to know about refinancing a loan

Ask your mortgage refinance lender the following questions:

What are the fees associated with the loan and what is their estimated total? You will probably be expected to pay some fees associated with processing your information and closing the loan. Ask your lender how much these fees will be. Knowing how much money you have to spend to refinance will help you determine whether refinancing your loan is actually going to save you money in the long run.

What is the interest rate, and how will it change over the life of the loan? Find out not only what your interest rate will be, but whether it is fixed or variable. In some cases, you may be charged a low interest rate for an initial time period, after which time your interest rate may increase, thus costing you more money. Ask your lender what to expect.

Do I have to pay points to achieve this rate? You might have to pay points in order to lower the interest rate on a loan.

Will you lock in interest rates and points you have quoted, and is there a charge for doing so? Your lender should be able keep your interest rate and points steady for a certain time period so that you won’t have any surprises when the life of your loan begins.

What is the term of the loan? This is how long you have to repay your loan.

Will there be a lump sum (balloon) payment due at the end of the term? Find out what you will owe at the end of your loan so that you can adequately prepare your finances.

What will my monthly payment be? Knowing this figure will help you determine your monthly budget including utilities, insurance and other expenses.

Will I need to pay private mortgage insurance? If you are refinancing a home loan, you may be expected to pay private mortgage insurance if you have less than 20 percent equity in your home.

Is there is a penalty for prepayment? In other words, if you pay off your loan early, will you be charged a fee?

Under what circumstances can you demand full payment of the loan? If you are late or fail to make a payment, you may be expected to pay the entire amount before the term of the loan is over.

What documentation is needed? You may need to submit information about your debts, assets and employment.

How long will the approval process take? This will tell you when your new monthly payment and interest rate will go into effect.