In these uncertain times, you may be refinancing your home to lower your monthly mortgage payment, shorten the term of your loan, pay off credit card debt or cash out a portion of your home equity to pay for travel, home renovation, a child’s education, and other expenses.

If you are considering refinancing, read these helpful tips:

1. Know your credit score before you start

   In general, if you have good to excellent credit, you should be in a better position to negotiate lower interest rates and fewer points. Points are a fee charged by the lender. Generally, paying more points upfront will result in a lower interest rate.

   If you have had credit problems or have a low credit score, you’ll need to be prepared to pay a larger down payment and higher interest rates. Or, you may decide to wait until your credit score has improved before you refinance.

2. Shop for Lenders

   Start shopping for a loan with your current lender. However, don’t automatically assume that this lender will give you the best deal. It’s possible that you’ll get a good rate, since the lender knows your payment practices and already has access to your financial information.

   Sometimes, however, lenders take advantage of their customer’s comfort level. A lender might assume that you’ll settle for a mediocre rate to avoid researching other options.

   To find other lenders, ask for referrals from friends, family members, and neighbors. Ask your bank or credit union.

3. Protect your credit history

   When you contact lenders for loan information, you will be asked to complete a pre-approval application. This gives the lender information needed to calculate the costs and terms of your loan.

   Inform lenders that you do not want your credit history pulled for the pre-approval, since each time your credit history is reviewed, your credit score is docked. Though the docking is minimal, multiple credit score inquiries can add up and have a negative effect on your score.

   Consider selecting the lender first, then let the lender run the credit report.

4. Know how to compare loans

   Comparing loans can be confusing. This year, new government regulations require banks to give you an accurate Good Faith Estimate (a list of your closing costs). Page 3 of the form provides a table to help you compare not just interest rates, but loan fees too. Make sure you are informed about the common loan fees detailed below and weigh them when you compare your loan options.

   If you are deciding between lenders with similar interest rates and fees, contact each lender and ask questions. That will give you a feel for the customer service that each lender provides. Choose the lender that offers the best service.

   Points

   These fees are 1% of the loan amount. So, a $350,000 loan with one point would have a loan point fee of $3,500.

   Point fees can often be paid to lower the interest rate on the loan.

   Some lenders allow points to be included or “rolled up” in the total loan amount. Points are paid at the closing.

   Closing costs

   These fees are almost always included in the lending process, though the amounts vary from lender to lender and from state to state.

   • title search
   • document preparation
   • wire transfer fees
   • recording fees
   • title insurance fees
   • appraisal fees
   • attorney fees
   • prepaid interest

5. Determine your break-even point

   No matter what loan option you choose, refinancing costs money. You may be saving $90 per month with your new mortgage payment. But, you also paid several thousand dollars in closing costs and loan processing fees when you refinanced.

   That may be okay if you are planning to stay in your house for several years, but if you plan to relocate in the near future, you may not realize your savings.

   For example, if you paid $3,000 in closing costs, you need to make 34 monthly mortgage payments before you recoup those costs – that’s almost three years.

   Before you refinance, it’s a good idea to know your break-even point. It’s an easy calculation:

   Total loan costs and fees divided by monthly savings amount = months to break even

   The Web offers numerous refi calculators to do the math for you.

6. Ask for a loan commitment letter

   When you have selected a loan, be sure to lock in the interest rate. Most loan quotes come with a 30- to 60-day rate lock. That may sound like plenty of time to process a loan, but refinances can take longer.

   To make sure that you get the rate you are expecting, ask the lender for a loan commitment letter that includes the interest rate and rate lock period as soon as you decide on a loan.

   If you think interest rates might decrease during your loan process, also ask your lender about a float down provision. This provision allows you to lock in at a lower rate if interest rates drop during your loan process.

7. Be a savvy shopper

   If it sounds too good to be true, it probably is. For example, “no closing cost” loans sound enticing. But the truth is, these loans simply have hidden fees.

   The fees for a “no closing cost” loan are usually wrapped up in the total loan amount. So, although you won’t pay out-of-pocket at closing, you’ll end up paying for closing costs over the full term of your loan – with interest.

8. Know your rights

   The Truth in Lending Act allows you three days to cancel a loan after signing the closing documents. You can cancel a loan if you have found a better rate, if you feel you are a victim of predatory lending, or if you have second thoughts about the high cost of the loan.

   All primary residence refinance transactions require the three-day recession period. Check with a real estate attorney to determine if your loan type is covered under this act and whether any restrictions apply.