Refinancing
Like other homeowners, you have owned your home for a few years and you have maintained a fair mortgage payment record. You might have gotten a pretty good deal on your interest rate, but as soon as mortgage interest rates fall below your current rate, you can’t help but wonder if and when it is worth it to refinance and obtain a lower interest rate.
You are aware that there are costs involved when refinancing, but the process may appear to be complex and you’re not definite where to start. Fortunately, there are agencies available to make the decision easier, and with an online mortgage calculator you are able able to do the math before you pick up the phone to contact a mortgage company.
Your Loan: Adjustable Rate Mortgage (ARM) or Fixed Rate?
The initial question you should ask yourself is whether your mortgage is an adjustable-rate mortgage (ARM) or a fixed-rate. If you have an ARM, your rate may be low, but can change. Not if, but when. Within defined limitations (or “caps”), your lender has the right to change your rate in relation to a financial index. Caps normally are defined by the acceptable frequency of the interest rate change, or the periodic change in interest rate, and the total allowable change in the interest rate over the life of the loan (the “life cap”).
A majority of the lenders regularly offer low initial ARM rates and then raise the rates continuously overtime. In the past, mortgage rates have gone as high as 15%. Can you affordthat? If you have an ARM, you owe it to yourself to apply foror a fixed-rate mortgage as soon as possible.
The Costs Associated With Refinancing
Refinancing your mortgage is really like taking out a new mortgage. When deciding whether or not it is valuable to refinance, remember that the costs are the same, and your credit rating will be a deciding factor. Here are the key closing costs you may need to pay:
• Points
• Application fee
• Attorney’s fees (yours)
• Attorney’s fees (lender)
• Title search
• Appraisal fee
• Local fees, taxes, transfers
• Credit check
• Inspections
• Document preparation
It is simple to presume that if your current rate is 6.5% and you can refinance to 6%, it will be worth it to refinance your home loan.
Maybe, maybe not. Aside from the additional closing costs listed above, you need to take into consideration the balance left on your current mortgage, your current monthly payments, and the projected payments at the new rate. These have to be weighed against the upfront cash cost of refinancing.
