Examine Your Mortgage Refinancing Costs Carefully |
|
When interest rates are on the
downslide, many homeowners opt for mortgage refinancing. However, you should only do so if: - When you bought your home, the interest rates were very high and you want to take advantage of the low rates now. - You want to shift from an ARM to fixed-rate mortgage or the other way around. - You want to avail of a lower rate or more favorable payment caps by converting to such an ARM. - You want to pay off your loan earlier and thus shorten the term of the loan. - The value of your house has risen since the time of the purchase and/or you have built equity in your house and if you have urgent need for money to pay for your child's education, pay off other debts or make improvements to your home and for that if you want to cash out equity. You should choose cash-out mortgage refinancing for the same. - You want to consolidate all your debts into one low-interest mortgage. Normally, mortgage refinancing is advisable only when you get a rate at least 2% lower than the rate on your current mortgage and if you plan to stay in the home for at least three years. You should still work out the simple math in your particular case. As an example, if you want to recoup your closing costs of $2,000 that allow you to refinance into the loan that saves you $100 a month in mortgage payments, you will need to stay at least 2,000/100=20 months in your home just to break even. You should, therefore, investigate all your mortgage refinancing costs and see if can match your requirements: - You should first approach your current lender, who might agree to waive certain fees and offer you his/her own mortgage refinancing package. - You can avoid application fees imposed by lenders to cover the initial costs of processing your loan, if you have good credit. - Title Search. You should be able to cover the cost of examining the public record to confirm ownership of the property. The policyholder is insured for a specific amount for any loss caused by discrepancies in the title to the property, with title insurance. In many cases, though the title industry does not promote this information to the general public, the company carrying your current insurance can reissue it at a rate that saves up to 70% on this type of expense. Say, if you had the title search five years ago, you should not require another full search, although title insurers sometimes severely restrict the eligibility period for a reissue discount or demand presentation of the prior title policy to the title agent. - You should check out the loan origination fees - You should also check the discount points, which are normally 1% of the loan amount. Even if you are offered no-pointers, you should beware of prepayment penalties. You should always calculate if saving money today on points will offset a higher APR tomorrow. Normally, mortgage refinancing comes with 1 or fewer points whereas a new home loan will cost 2 points or more. - Appraisal fee for an estimate of the value of the house. - You must check the prepayment penalty for your existing loan before considering mortgage refinancing as it can work out to six months interest on 80% of your balance. Some states prohibit this practice. - You should check the loss of tax savings due to the drop in tax-deductible interest payments. - For better rates, you must check with refi or consolidation lenders who advertise that they offer better mortgage refinancing terms than regular lenders. Ensure that all closing costs are clearly disclosed to you. Beware of lenders who promise a no-cost mortgage refinancing option but their fees is included in the loan or it is compensated by higher interest rate. You must work out your math correctly before taking any financial decision. You can also use online free calculators or ask your loan officer to work out the costs and the other pertinent figures for you. |
