Time to Refinance?
There are numerous reasons why you
may want to refinance your current mortgage, but in the end, they all revolve
around
saving money.
In the past, the decision on
whether or not to refinance was broadly based on comparing the savings generated
by a lower monthly payment against the costs of refinancing. But in recent
years, lenders have introduced no cost and low cost refinance loans that
minimize or completely eliminate the non-recurring, out-of-pocket costs of
refinancing. These types of refinances involve either a slightly higher rate or
including some or all of the costs in the amount financed.
The old
rule-of-thumb that your rate should drop 1% or more before you refinance is no
longer valid, given these ways to refinance. Certainly a drop of 1% in your
interest rate makes refinancing worthwhile. But with these newer no cost and
low-cost refinancing programs, it can be worthwhile to refinance to obtain a
smaller reduction in your interest rate. The other pertinent question you must
address is how long you expect to stay in your home. If you are moving in a few
years, you might never break even on the costs.
Get the Facts - Do the Numbers.
Refinance Considerations
When you're making your decision, there are several things in mind.
Refinance once then do it again.
When rates fall steadily, refinancing may make sense even if you have done so
once already. Bob and Michelle Barbo of Kirkland, Wash. refinanced twice within
three months in 1998.
Refinance to build equity faster.
Many borrowers use a refinance to shorten the term of the mortgage. And brace
yourself: Even at low rates, a shorter term means a higher monthly payment. The
benefit is that you'll build up equity faster and pay far less in total interest
over the life of the loan.
Trade in your ARM for a Fixed Rate.
By switching to a fixed-rate loan, you will not only reduce your payment, you
will also likely lock in an attractive rate for as long as you own your home.
Mortgage Refinance Costs.
When you refinance your mortgage, you usually pay off your original mortgage and
sign a new loan. With a new loan, you again pay most of the same costs you paid
to get your original mortgage.
Analyze your savings.
Check the market closely to determine the available rates and the costs
associated with refinancing. These costs can include items such as an appraisal
and other various fees and points.
Paying points for a lower rate.
In refinancing, a mortgage company usually offers a range of interest rates at
different amounts of points. A point equals one percent of the loan amount. For
example, three points on a $100,000 mortgage loan would add $3,000 to the
refinancing charges.
Your Personal income Taxes.
With a lower interest rate on your home loan, you will have less interest to
deduct on your income tax return. That, of course, may increase your tax
payments and decrease the total savings you might obtain from a new,
lower-interest mortgage
Consider other mortgage programs.
If you are thinking about refinancing your mortgage, you might want to consider
other types of mortgages. For example, you might want to look into a 15-year,
fixed-rate mortgage.
Deciding to Refinance.
Traditionally, the decision on whether or not to refinance has meant balancing
the savings of a lower monthly payment against the costs of refinancing. But in
recent years, companies have introduced "no cost" and low-cost refinancing
packages that minimize ...
Refinance Calculator.
Calculate your refinance savings.
Angie McCarter
Contact me for
more info
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