Posted by Elizabeth Dennis on April 9, 2011 | No Comments
Refinancing your home loan can be a great way to save hundreds of dollars in interest over the life of the loan and reduce monthly costs at the same time. However, it is important to recognize that the act of refinancing can cost several thousand dollars as there are fees which have to be paid upfront with cash or rolled into the new loan. If you have an idea of what to expect, however, you can get a general idea of how much a refinance will cost you and whether it is worth the money and the hassle.
In general, a homeowner can expect to pay anywhere from two to three percent of the loan amount when refinancing a home loan in closing costs. This amount is made up of various fees which you will encounter when refinancing. The most prevalent fee is the refinance loan application fee. This will cost the homeowner anywhere from $250 to $500. The lender closing fees are also tacked on and average about $750 nationwide. There are also settlement fees which can tack on an additional $350. Depending in which state you live, title examination fees can range from $150 to $450. Title insurance will also vary from state to state and will run about $225 to $400. Refinancing also takes a lot of documentation and the fees for preparing those documents can run from $200 to $400. There can also be fees for home inspections, mortgage insurance and hazard insurance.
The above amounts are only estimates and can vary greatly depending on your lender and state. In some cases, it will pay to shop around for the best rate especially when it comes to title insurance a title search. You may also be able to save money if the work related to the mortgage is still current. For example, this could include fees for surveys or inspections. Before you commit to any loan or start the refinancing procedure, it may be a good idea to talk to a real estate professional or lawyer in order to get a better idea of the fees which you might be facing. In some cases, you may not have the cash available to go through with the refinancing at that particular moment and would find it better to wait until you can save a little bit more.
An important thing to consider when going through a refinance is to pay attention to the time of the month. When the refinance closes, there will likely be some outstanding interest on the old loan. For example, if you close on the 15th of the month, you will have fifteen days of interest due on the old loan and about fifteen days on the new one. Your first payment would not be due until the first of the next month because you will have pain the previous month’s interest in the closing costs. These are just some extra fees that can get tacked on that most people don’t think about.
Posted by Elizabeth Dennis on January 25, 2011 | No Comments
There can be many reasons why a homeowner chooses to go through a refi. In fact, many are very legitimate reasons, but you still want to make sure that doing so is not going to damage your credit and that it is a positive move in the end.
When going through a refinancing, understand that it could be just as challenging as getting the original mortgage. You will still have to fill out much of the same paperwork and jump through similar hoops. You may decide you want to go through a refi if you want to reduce your monthly payment by taking advantage of lower interest rates or extending the life of your loan.
You can also reduce your interest rate and switch from an adjustable rate mortgage or a balloon payment to one that has fixed rates. Refinancing can also save you money over the long run by shortening the term of the loan and reducing those interest payments. Finally, you can get much needed cash for either home improvements or just to consolidate other bills.
If you are considering refinancing, a good rule to keep in mind is that if interest rates are ½% to 5/8% lower than what you are currently paying, then it may be a good idea to take advantage of the lower rate. However, don’t consider interest rates on their own. You will also want to take into consideration how long you plan on staying in your home, your overall financial goals and how you want to use the equity.
When going through a refi, there are several different types of loans which you can choose from. A fixed rate mortgage is one that will give you the same interest rate over the entire length of the loan. This also gives you predictable monthly payments and you won’t be subject to the whims of the market should interest rates spike upwards.
An adjustable rate mortgage, however, will see the interest rates rise and fall. This can mean lower payments early in the life of the loan, but they can grow significantly after anywhere from three to ten years. You’ll also have to decide on the length of the loan. They typical length is thirty years, but if you want to pay the loan off sooner, you can choose from ten, fifteen, or twenty year loans. Longer period loans are good for those who are on a fixed budget and who want to reduce the monthly cost as much as possible.  Shorter mortgages require higher monthly payments, but you will own the house sooner and you can reduce the amount of interest paid.
When applying for a refinance, you will have to submit paperwork containing your personal data, income, assets, debts and credit. Once approved, there will also be closing costs which can run anywhere from a few hundred dollars to a few thousand. Be sure to have the cash on hand to take care of these additional expenses or see if you can roll them into your new loan.
Posted by Elizabeth Dennis on April 12, 2010 | No Comments
Can You Lower Your Mortgage Rate by a Point or More?
A popular rule of thumb states that it is worth looking into refinancing your mortgage if the going rate is 0.50 percent lower than your current rate. For example; if you have a 30-year $200,000 loan with a 6% interest rate you could indeed cut your monthly payment by $125 if you can find a new rate of 5.5 percent.
However, you will also need to consider the cost to refinance. When you do, you may find this 0.50 percent is not enough of a savings to cover the cost of refinancing which can be 2 – 4 % of the new loan amount. But if you can find an interest rate that is a full percentage point lower than your current rate, you can certainly come out ahead.
Are You in Need of Extra Cash?
Home equity loans and lines of credit are increasingly harder to come by. If however, you have a significant amount of equity in your home; cash-out refinancing can be a great alternative. Essentially, you refinance your home but take out a larger loan than what you currently owe and pocket the difference. For example; if you owe $80,000 on your $200,000 mortgage you could refinance for $100,000 and walk away with $20,000 in cash.
Typically banks set a limit to how much you can pocket when you refinance. They normally want to retain 30% equity in the new loan which translates into being able to borrow only 70% of your home’s current value.  Be careful though as it isn’t uncommon for the closing fees for these transactions to be quite high; ranging anywhere between 0.25 and 3.0 percent. Find yourself, or better yet negotiate yourself, a loan with low closing costs and you might be on your way to doing that kitchen remodel or paying off those high interest credit cards.
Do you want to Say Goodbye to your Adjustable Rate Mortgage?
If you have no plans to sell before your adjustable rate resets and you would like to turn that adjustable rate into a fixed rate; the time to do it is now, while the fixed rates are still low. Remember, as the economy recovers, there is only one way for the interest rates to go. Be aware however, that the adjustable rate mortgages are also quite low right now; so don’t be tempted by those rates and lock yourself in to that adjustable rate (again). You may not want to miss out on that year of super low interest, but by grabbing a low fixed rate you will benefit for years to come.
It typically takes up to two years for you to break even when refinancing your home. With that, if there is a chance you will be selling within the next two years, do NOT refinance. Additionally, you’ll want to use this two year benchmark as a guide to whether the refinancing deal you are being offered truly is a deal. If you run the numbers and find that it takes longer than these couple of years to break even; find another offer.
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