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- Should I refinance?
- When interest rates fall, a homeowner should certainly explore the possible benefits of refinancing;
however, you should discuss your financial situation and goals with your lender before making a final
decision. Are you looking to lower your monthly payment? Consolidate debts? Get cash out for a large
purchase? Change your interest deduction expense for your taxes? Ask your lender to provide you with
a few refinancing scenarios that outline how your loan's term, monthly payment, and total interest
expense will change. After reviewing these scenarios, you'll have a more clear picture as to whether
or not the cost to refinance is worth it for you.
- Is there a best time to refinance?
- The old rule of thumb is that a person should refinance when mortgage rates drop 2% or more below
their current interest rate. However, refinancing may be a viable option even if the difference is
less. A modest reduction in the loan rate can still trim your monthly payment. For example, the monthly
payment on a $100,000 loan at 8.5% is about $770 (excluding taxes and insurance). If the rate were
lowered to 7.5%, the monthly payment would be about $700, or a savings of $70. Again, the significance
of such savings is dependent upon your overall financial picture, how long you plan to stay in the
home, etc.
- Should I refinance if I plan to move soon?
- This is an important factor to consider. Most lenders charge fees to refinance a loan. If you plan
to stay in your home for less than a few years, there may not be enough time for your monthly savings
to outweigh your up front costs. For example, let's say your refinance transaction lowered your monthly
payment by $50 and the lender charged you $1,000. It will take 20 months ($1,000 divided by $50)
for you to recoup the up front cost before you will begin realizing your savings. Some lenders offer "no
cost" loans which come with a slightly higher interest rate but no other costs. The attractiveness
of these loans depends on the interest rate you are being charged on your current loan.
- Is there anything I should consider before refinancing?
- One factor people don't always consider is that saving mortgage interest dollars might not always
be the best choice for everyone. You have to take a good look at your own "financial personality" here.
Remember that mortgage interest is tax deductible. When you reduce your monthly payment, you reduce
your tax deduction as well. Are you disciplined enough to invest your newfound monthly savings in
such a way that your lessened tax benefit won't be a problem?
- What types of fees should I expect to pay?
- This depends but, in general, costs might include a lender application fee, an origination fee
(typically 1% of the loan amount), administrative fees, title insurance company costs (settlement
fee, title search, title insurance premium, handling/service fees, recording fees paid to the Clerk
of the Court). Your new lender will disclose their fees to you on a Good Faith Estimate, which is
usually done at the time of application or soon after. The sum of all charges could amount to 2-3%
of the loan amount. If you don't have the available cash to cover the associated loan costs, you
might want to look for lenders offering "no-cost" loans. There will be a slightly higher
interest rate associated with such a loan, so discuss the pros and cons with your lender. In addition,
if you have a prior First American Owner's Policy which is less than ten (10) years old, you qualify
for a discount on the title insurance. You will need to provide us with a copy of the policy.
- What are points?
- Points are costs that need to be paid to a lender in order to receive mortgage financing under
specified terms. One point is equal to one percent of the loan amount. In other words, one point
on a $100,000 loan would be $1,000. Discount points are fees that are used to lower the interest
rate on a mortgage loan. Some people may choose to pay one or more points to the lender up front
in exchange for a lower interest rate. The choice is personal and dependent upon one's financial
situation, how long one plans to be in the home, etc.
- When should I contact the title company?
- Contact them as soon as you are reasonably sure of loan approval and agreement of terms with your
lender. You should inform your lender at the time of application (or shortly thereafter) who you
have chosen to conduct your closing. You may be required to place a non-refundable deposit with the
title company to cover expenses, which will be applied to costs at the time of closing. It is advisable
to contact the title company at least two weeks prior to closing.
- What will the title company need?
- ~ Information about your property (address, etc.)
~ Name, phone number, account number for each open mortgage
~ Social Security Numbers for all owners
~ Name and phone number for new lender
~ Copy of prior Owner's Policy if less than ten (10) years old
- Why do I need another title search?
- Each lender requires that a Commitment to Insure be issued in their favor prior to closing. The
information in that Commitment can only be obtained from a review and evaluation of documents in
the local land records. Therefore, the title company must research these records for each transaction.
This gives them and the lender a proper picture of all existing liens and encumbrances as well as
accurate ownership and real estate tax and assessment information.
- If I have title insurance, why do I need to buy again?
- When you purchased your home, you probably paid for Owner's and Lender's Title Insurance Policies.
Your Owner's Policy will remain in force and effect; however, when the existing loan is paid off
at the time of refinancing, a new Lender's Policy must be issued.
- What will happen at the closing?
- Normally, you will come to the title company's office to sign all of the new loan papers. You will
have to show proper identification since many of these are legal documents which require a Notary
Public's acknowledgment. The lender will have prepared and delivered to the title company all of
the paperwork pertaining to your new loan. You will sign many of the same documents and forms that
you signed when you originally purchased your home.
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