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Is
it time for me to refinance?
■
When
should I refinance my current mortgage loan?
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Should
I refinance if I plan on moving soon?
■
How
much will it cost me to refinance my current home loan?
■
What
are points?
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Should
I try to pay as many discount points as possible to lower my
loan's interest rate?
■
What
does it mean to lock the interest rate on a mortgage loan?
■
Should
I lock-in my loan rate when I apply for a mortgage loan?
■
I've
had credit problems in the past. How does this impact my
chances of getting a home loan?
■
I've
only been late a couple of times on my credit card bills.
Does this mean I will have to pay an
extremely high interest rate?
■
How
can I tell who has the best deal on financing?
■
Should
I choose the lender with the lowest interest rate and costs?
Is it time for me to
refinance?
Answer:
When interest rates fall, a homeowner should definitely call
a lender about refinancing, but he or she should discuss
their entire financial situation and goals before making any
final decision. Is your goal to lower your monthly payment?
Consolidate debts? Get cash out for large purchases? Change
your interest deduction expense for your taxes? Ask your
lender to provide a couple of refinancing scenarios for you,
showing how your loan term length, monthly payment and your
total interest expense on the loan will change. After
looking at these scenarios, it will be clear whether or not
you should spend the money to refinance.
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When should I
refinance my current mortgage loan?
Answer:
It is often said that you should refinance when mortgage
rates are 2% lower than the rate you currently have on your
loan. Refinancing may be a viable option even if the
interest rate difference is less than 2%. A modest reduction
in the loan rate can still trim your monthly payment. For
example, the monthly payment (excluding taxes & insurance)
would be about $770 on a $100,000 loan at 8.5%. If the rate
were lowered to 7.5%, the monthly payment would be about
$700, a savings of $70. The significance of such savings in
any scenario will depend on your income, budget, loan amount
and the change in interest rate. Your trusted lender can
help calculate the different scenarios.
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Should I refinance if
I plan on moving soon?
Answer:
Most lenders will charge fees to refinance a loan. If you
plan to stay in the property for less than a couple of
years, your monthly savings may not get a chance to
accumulate and recoup these costs. Let's say a lender
charged $1,000 to refinance your loan, but it resulted in a
monthly savings of $50. It would take 20 months (1,000
divided 50) to recoup the initial costs before you start to
realize some savings. Some lenders will charge a slightly
higher than average interest rate on refinance loans, but
waive all costs associated with the loan. The attractiveness
of these loans will depend on the interest rate you are
being charged on your current loan.
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How much will it cost
me to refinance my current home loan?
Answer:
In addition to an application fee ($250-350) you will likely
have to pay an origination fee (typically 1% of the loan
amount). In many cases you will have to pay much of the same
costs that you had to pay with your current home loan (title
search, title insurance, misc. lender fees, etc.). The sum
of these fees could cost you up to 2-3% of the loan amount.
If don't have the money to pay for associated loan costs,
look for lenders that offer 'no-cost' loans. These loans
will charge a slightly higher interest rate, so ask a lender
if it would still make sense to refinance using this type of
program.
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What are points?
Answer:
Points are costs that need to be paid to a lender in order
to receive mortgage financing under specified terms. A point
is a percentage of the loan amount (one point = one percent
of the loan). 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 (you are discounting the interest
rate by paying some of this interest up-front). Lenders may
express other loan-related fees in terms of points. Some
lenders may express their costs in terms of basis points
(hundredths of a percent). 100 basis points = 1 point (or 1
percent of the loan amount).
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Should I try to pay as
many discount points as possible to lower my loan's interest
rate?
Answer:
If you plan on staying in the property for at least a few
years, paying discount points to lower the loan's interest
rate can be a good way to lower your required monthly loan
payment (and possibly increase the loan amount that you can
afford to borrow). If you only plan to stay in the property
for a year or two, your monthly savings may not be enough to
recoup the cost of the discount points that you paid
up-front. Ask your lender how long it would take for your
monthly savings to recoup the costs of the discount points.
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What does it mean to
lock the interest rate on a mortgage loan?
Answer:
Due to the nature of interest rate movements, mortgage rates
can change dramatically from the day you apply for a
mortgage loan to the day you close the transaction. If
interest rates rise sharply during the application process,
it could make a borrower's mortgage payment larger than
he/she previously thought. To protect against this
uncertainty, a lender can allow the borrower to 'lock-in'
the loan's interest rate, guaranteeing the borrower the
prevailing loan rate for a specified period of time (often
30-60 days). A lender may or may not charge a fee for this
service.
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Should I lock-in my
loan rate when I apply for a mortgage loan?
Answer:
No one knows for sure how interest rates will move at any
given time, but your lender may be able to give you an
estimate of where it thinks mortgage rates are headed. If
interest rates are expected to be volatile in the near
future, you may want to consider locking your interest rate
if rising rates will no longer allow you to qualify for the
loan. If your budget can handle a higher loan payment or if
the lenders lock fee seems excessive for your means, you
might want to consider allowing the interest rate to 'float'
until the loan closing.
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I've had credit
problems in the past. How does this impact my chances of
getting a home loan?
Answer:
Obtaining a home loan is possible even with extremely poor
credit. If you have had credit problems in the past, a
lender will consider you to be a risky borrower to lend to.
To compensate for this added risk, the lender will charge
you a higher interest rate and usually expect you to pay a
higher down payment on your home purchase (typically 20-50%
down). The worse your credit is, the more you can expect to
pay for an interest rate and a down payment. Not all lenders
choose to lend to risky borrowers, so you may have to
contact several before finding one that will.
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I've only been late a
couple of times on my credit card bills. Does this mean I
will have to pay an extremely high interest rate?
Answer:
Not necessarily. If you have been late less than three times
in the past year, and the payments were no more than 30 days
late, you probably have a pretty good chance at getting a
home loan at a competitive interest rate. Lender guidelines
will vary, but most lenders will excuse a couple of minor
'late-pays' as long as the borrower can provide a reasonable
excuse explaining them (i.e. job transition, illness). If
the late-pays were 60+ days late and cannot be explained,
you may have to settle for a higher interest rate.
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How can I tell who has
the best deal on financing?
Answer:
When comparison shopping among lenders, remember that a
lender can structure financing for a borrower several
different ways. A lender can charge higher fees and offer a
low interest rate while another may charge a slightly higher
interest rate with lower fees. In order to make an 'apples
to apples' comparison between lenders, ask each lender what
their interest rate is for a zero discount point loan (based
on a 30 or 60 day lock period). Then ask each lender what
they charge for an origination fee, as well as any other
fees they typically charge for a loan, (i.e. broker,
processing, underwriting). A reputable lender will not
hesitate in answering these questions.
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Should I choose the
lender with the lowest interest rate and costs?
Answer:
There are primarily two things to consider when choosing one
lender over another: the quality of service being provided
and the cost of services provided. Quality of service is
especially important to those who have never purchased a
home. First-time home buyers will likely have many questions
regarding the financing process and available loan options.
When comparing lenders, ask each lender several questions
before you fill out any loan application. A good lender
should be able to get you through the financing process
leaving you confident that you made a sound financial
decision. If after a few questions you do not feel
comfortable with the lender, simply call someone else.
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