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If you are thinking of refinancing your mortgage, there is one question you should ask your mortgage lender that could save you thousands of dollars!

As mortgage rates are now at the lowest point, mortgage brokers, loan officers and mortgage bankers are continuously receiving calls from borrowers who want to refinance. As for many of them, interest rates have never been so low, everybody thinks that this is a perfect time to take advantage and to refinance.

However, when borrowers ask what the interest rate would be if they were refinancing, they often receive a quote different from what they received over the phone or viewed on the internet or TV. The reason is they do not understand that interest rates vary based on the borrower’s credit score, income and work history. What can also heavily influence your interest rate is the value of your property compared to the loan amount, which is called the loan-to-value or LTV. Not to mention that some borrowers may need to pay additional costs as mortgage insurance.

The one important question you need to ask your mortgage lender before you go for a refinance is, “What will it cost me?”

Obviously, one of the costs will be the interest rate that will be charged to you. Besides that, there will also be multiple charges during a refinance. This question is one of the most important one.

Before applying for a home loan or refinancing your existing mortgage, make sure to ask your mortgage lender to prepare a GFE upfront. A GFE is a ‘Good Faith Estimate’, which is an itemized estimate of the costs that will be charged to you when obtaining a mortgage or refinancing one. This is the first thing you need your prospective lender to prepare for you.

The costs that are usually incurred in connection to a mortgage loan or refinance loan are origination fees, loan discount points, credit report, underwriting fees, and appraisal, processing fees, tax service fees and others. There are also the costs connected to title and escrow such as closing fees, title insurance, notary and attorney fees and preparation fees. Other fees included are government recording and transfer charges and other additional miscellaneous settlement charges. All those are onetime costs or also referred to as non-recurring closing costs.

Sometimes it is required by the lender to pay recurring cost such as interest to be paid in advance. This depends on what day in the month you close the deal. This is called the prorated or prepaid interest. There may be other prepaid cost such as hazard insurance, flood insurance, mortgage insurance or property taxes.

After receiving the Good Faith Estimate, check for a term that is referred to as yield spread premium (YSP).  This YSP fee is a fee from a lender to a loan broker paid when the broker arranges a loan where the interest rate on the loan is inflated to an amount higher than the “par” rate. The Yield Spread Premium can actually affect the interest rate you receive.

So before you actually apply for a refinance, make sure that your prospective lender discloses all the costs, including who is paying them.

When you have the Good Faith Estimate ready in front of you, move down to the sheet and look for two sections containing the total estimated funds needed for closing the loan and the estimate for ongoing mortgage payment.  This will be your actual cost to refinance.

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