THE ART OF REFINANCING
AVOID THE TOP ERRORS MADE
With interest rates being at
their lowest in over 35 years, many homeowners are exploring the option of
refinancing their current home mortgage loan.
Whether you secure a
loan with
a new mortgage company or the same lender who has your current loan, you have to
start all over again. This means that you will have to fill out an application,
get your home appraised, get an updated title report, and pay closing costs.
Refinancing is a brand new loan and therefore will be treated as one. The only
difference is that there won't be a buyer/seller situation.
|
Seller Links
 |
|
|
|
|
Just as you did with your
original mortgage, shop around for rates.
Determine what
your finances can handle - a 15-year or 30-year loan.
When many people start out in a
home, they go with an Adjustable Rate Mortgage (ARM), which most often
changes annually although some change only every three years. When you look at
refinancing, you should look into getting a Fixed Rate Mortgage (FRM)
that will lock you into anon-changing loan. In other words, your payments will
remain the same over the life of the loan.
Make sure you look at all
the costs involved with refinancing.
There could be additional fees for underwriter fees, title search, title
insurance, etc.
Next, find out if your
lender will be charging you any up-front points.
Remember that each point is equal to one percent of the loan amount. If you were
to borrow $100,000, each point would cost you $1,000.
Work with your lender to
determine the amortization so you know exactly what your monthly payments will
be. If you want, you can go to any of the main search engines such as
www.google.com or
www.lycos.com and in the
search field, type in mortgage loan calculator. These are free and allow you to
calculate your down payment, monthly payment, payoff, etc.
If you plan to stay in the
house for sometime, it makes more sense to go with a lower interest rate and add
the point or points you need to pay on the new loan. Keep in mind that points on
refinance loans are usually not tax deductible unless the purpose of the loan is
to pay off improvements made to the house.
Although there is no guarantee
as to what the future will bring, analysts are predicting that interest rates
will start to creep back up. As the economy starts to recover, interest rates
will also re-establish at a higher rate.
Locking into a 30-year fixed
rate at a lower interest rate has a lot of merit and is a great consideration.
On the other hand, if you don't
plan to stay in your home more than three years, and you can lock into an
adjustable rate for less than 6%, it would make more sense to go this route. The
reason is that over the three-year period, the rising interest rate from the ARM
will not be enough to be worried about losing.
If you're not sure which way to
go, sit down with several lenders as well as a financial advisor and have them
look over the figures with you. Keep in mind that not all refinance programs are
the same. They will vary from one lender to the next so look around.
It's never too late to
refinance.
However, a standard rule is anytime the interest rates drops 2% or more from
your original interest rate, you should refinance. A difference of 2% could save
you around $200 a month, or $2,400 a year. That's definitely worth considering.
There are many different
reasons for refinancing a house. Lower interest rates are just one of them.
Other reasons might include going through a divorce, education needs, debt
consolidation (getting credit cards and other bills paid off). No matter what
your reason, this is a great time.
Just as with your first
mortgage, when you refinance, you need to stay in your home long enough for the
new mortgage to pay off as far as up-front costs to process the refinance. This
would include settlement charges, application fees, points, credit report fees,
title insurance, etc. All these costs would be added into the new loan so
determine how long it will take to pay off all of these fees.
Beginning February 1, 2002,
Fannie Mae made changes to its refinancing rules. Since they are the largest
mortgage buyer in the country, this is important.
There are two types of
residential refinancing.
Rate-and-term and cash-out. For the
rate-and-term, the borrower wants to lock into a lower rate, and a short
repayment schedule, such as 15 years opposed to 30. In this case, the borrower
is trying to avoid more debt other than closing costs of settling the loan. For
the second option, the cash-out, the borrower might want to obtain a
lower rate, shorter payment term, and lower monthly payments. In this situation,
the borrower also wants to finance more that the remaining loan amount. For
example, if the remaining figure is $150,000 they may want to secure $200,000.
With the additional money, they will payoff credit cards and other debt.
The changes in February will
divide the cash-out option into two categories - cash-out refinancing and
limited cash-out refinancing.
The limited cash-out
refinancing allows the homeowner to refinance current debt in order to get a
lower rate, smaller payment, and shorter loan term. This change also means that
Fannie Mae will now be defining current debt as the original financing used to
acquire the property.
The limited cash-out will
include only loans that involve the pay-off of the outstanding principal balance
of an existing first mortgage, the pay-off of the outstanding principal balance
of existing subordinate mortgage used in whole to acquire the property, the
financing of closing costs (including prepaid expenses), and cash back to the
borrower in an amount no more than the lesser of 2% of the balance of the new
refinance mortgage or, $2,000.
What this means is that
Fannie Mae is looking for more compensation when there is greater risk.
Refinancing always includes some costs. To determine if refinancing
will work for you, look at the overall expenses as well as monthly savings. You
need to know the full package price as well. Shop around, look at all the
numbers, and if possible, consider refinancing before rates increase.
I have created this website for one reason and that is
to help you to make an informed decision.
If you have any questions or if I can be of any help
with your real estate purchase or sale, please do not
hesitate to call me.
Best wishes,
Brian LaDue
"Lakeside Property Shop"
(586) 873-2242 Macomb County
(248) 787-8644 Oakland County
realtor@brianladue.com
OFFICE LOCATION:
14072 North Lakeside Blvd. Suite A
Shelby Twp MI 48315 |
