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If you are a homeowner who
was lucky enough to buy when mortgage rates were low, you may
have no interest in refinancing your present loan. But perhaps
you bought your home when rates were higher. Or perhaps you
have an adjustable rate loan and would like to obtain different
terms.
Should you refinance? This refinancing tip will
answer some questions that may help you decide. If you do refinance,
the process will remind you of what you went through in obtaining
the original mortgage. That's because, in reality, refinancing
a mortgage is simply taking out a new mortgage. You will encounter
many of the same procedures-and the same types of costs-the
second time around.
Would Refinancing Be Worth It?
Refinancing can be worthwhile, but it does not make good financial
sense for everyone. A general rule is that refinancing becomes
worth your while if the current interest rate on your mortgage
is at least two percentage points higher than the prevailing
market rate. This figure is generally accepted as the safe margin
when balancing the costs of refinancing a mortgage against the
savings.
There are other considerations, too, such as how
long you plan to stay in the house. Most sources say that it
takes at least three years to realize fully the savings from
a lower interest rate, given the costs of the refinancing. (Depending
on your loan amount and the particular circumstances, however,
you might choose to refinance a loan that is only 1.5 percentage
points higher then the current rate. You may even find you could
recoup the refinancing costs in a shorter time.)
Refinancing can be a good idea for homeowners
who: Want to get out of a high interest rate loan to take advantage
of lower rates. This is a good idea only if you intend to stay
in the house long enough to make the additional fees worthwhile.
Have an adjustable rate mortgage (ARM) and want a fixed-rate
loan to have the certainty of knowing exactly what the mortgage
payment will be for the life of the loan. Want to convert to
an ARM with a lower interest rate or more protective features
(such as a better rate and payment caps) than the ARM they currently
have. Want to build up equity more quickly by converting to
a loan with a shorter term. Want to draw on the equity built
up in their house to get cash for a major purchase or for their
children's education.
If you decide that a refinancing is not worth
the costs, ask your lender whether you may be able to obtain
all or some of the new terms you want by agreeing to a modification
of your existing loan instead of a refinancing.
Should You Refinance Your ARM (Adjustable Mortgage)?
In deciding whether to refinance an ARM you should consider
these questions:
Is the next interest rate adjustment on your existing loan likely
to increase your monthly payments substantially? Will the new
interest rate be two or three percentage points higher than
the prevailing rates being offered for either fixed-rate loans
or other ARM's? If the current mortgage sets a cap on your monthly
payments, are those payments large enough to pay off your loan
by the end of the original term? Will refinancing a new ARM
or a fixed-rate enable you to pay your loan in full by the end
of the term?
What Are The Costs of Refinancing?
The fees described below are the charges that you most likely
will encounter in a refinance.
Application Fees
This charge imposed by your lender covers the initial costs
of processing you loan request and checking your credit report.
Article continued at http://www.loanlinks.com/loanlibrary/refinancing_tips.html
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