| It's never the wrong time to think about a new loan. When you refinance, you might be able to lower your interest rate and monthly payments. |
You are still paying for most of the same things you paid for when you obtained your original mortgage, including settlement costs/fees, an appraisal, lender’s title insurance, underwriting fees and so forth. Also, depending on the terms of your existing mortgage, you may have to pay a penalty if you refinance too quickly. However, we will walk you through the process and figure things out for you. We work with you to qualify you for the best loan program (taking into consideration your on-hand cash, likelihood to sell you home in the near future and tax implications), and there are some general considerations to keep in mind in advance. |
Want to lower your rate and monthly payments?
Whether you currently have a high, fixed rate mortgage or an ARM (with a varying interest rate), your best option might be a low fixed-rate loan. Unlike the ARM, when you qualify for a fixed-rate loan, you lock in that low rate for the life of your loan. If you don’t see yourself moving within the next 5 years, this is a great loan for you. However, if you plan to move from your home within 5 years, an ARM (with an initial low rate) would be the best program to lower your monthly payment.
Want to primarily cash out on some home equity?
You will want to qualify for a loan exceeding the remaining balance on your current mortgage. If you’ve had your current mortgage for a number of years and/or have a mortgage whose interest rate is higher, you may be able to do this without increasing your monthly payment. You are now able to pay for home improvements, your child’s tuition, your dream vacation, etc. Since the interest rate is much less on your mortgage, you can refinance to consolidate and pay off other debt (credit cards, car loans, student loans, etc) and possibly save hundreds of dollars per month.
Want to build up home equity more quickly/pay off your mortgage sooner?
You will want to consider a shorter-term loan (15-year mortgage). Although your payments will be higher than a longer-term loan, you will pay substantially less interest and quickly build up more equity. For those of you that have had your 30-year mortgage for a number of years, you might be able to do this without increasing your monthly payment (and possibly save). For example, I took out a 30-year mortgage worth $200,000 at 8% interest and my payment is $1,470 per month (excluding taxes/insurance). If today’s balance is down to $165,000, I could take a 15-year mortgage at 6.5% and have almost an identical monthly payment. If your primary goal is to build equity in your home, this is the best option for you.
Buying Points
Finally, questions have been raised about ‘buying points’ to get a more favorable interest rate. For example, if you pay 3% of the loan amount up front, your savings for the life of the new mortgage can be significant. In addition, you should consult your tax accountant prior to ‘buying down points’. The IRS has put in new deduction stipulations that should be reviewed. Also, by lowering your interest rate, you will be lowering the amount of mortgage interest payments you can deduct from your federal income taxes. Again, your tax accountant can help you here. |
