When making a decision about refinancing a mortgage
loan on your home, there are several things to keep in mind.
Even a small rate reduction can pay off quickly and
cut your expenses! That's because you can easily find mortgage
companies willing to waive routine refinancing charges such as
application, appraisal, and legal fees (which can add up to $1,500 to
$3,000). Of course, in exchange for low or no up-front costs,
you'll have to be willing to accept a rate that's somewhat higher than
the prevailing rock bottom.
If you are planning to stay in your home for at least
3-5 years, it may make sense to pay "points" (a point equals 1% of the
loan amount) and closing costs to get the lowest available rate.
You can avoid laying out cash and still get a low rate
by adding the points and closing costs to your new mortgage. Does
that mean shouldering a lot of extra debt? Not necessarily.
If you've had your current mortgage for at least three years, you've
probably reduced your balance by several thousand dollars. So you
may be able to tack your closing costs onto your new loan and still end
up with a mortgage that's smaller than your original one AND a lower
rate and lower monthly payment.
Pay off Your Mortgage Faster!
Many borrowers use a refinance to shorten the terms of
the mortgage, but even at low rates, a shorter term may mean a higher
monthly payment. The benefit is that you'll build up equity faster
and pay far less in total interest over the life of the loan.
If you can't afford the payments on a 15-year
mortgage, your next best means of building equity is to refinance for
less than 30 years. Deb can customize your new loan's term to
match the years that are left on your old loan -- if you are five years
into a 30-year mortgage, for example, we can write a 25-year loan.
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Take Cash Out
Another way to make a refinance work for you
is to refinance for more than the balance remaining on your old
mortgage -- in effect, tapping your home equity, or "cashing
out," in mortgage speak. Thanks to favorable rates, you
may be able to do so without boosting your monthly outlay.
For example, at 8.5%, the payment on a $200,000, 30-year
fixed-rate mortgage is $1,538. But at 7.5%, that same
payment lets you borrow nearly $20,000 more.
The best use for the extra cash is to pay off
any higher-rate loans you may have. Let's say that you are
carrying a $15,000 car loan at 10% and making minimum payments
on a $10,000 credit-card balance at 17%. Your monthly
payments on those debts would total $680. Then assume you
refinanced your mortgage, taking out an additional $25,000 to
pay off your car and credit-card loans. At 7.5%, your additional
monthly mortgage payment would total only $175, so you would
come out $505 ahead ($680-$175=$505).
Of course, all the extra cash can be used in
any way you choose. Use it to pay tuition expenses, pay
off a high-interest home equity loan, credit cards, auto loans,
or use the cash to remodel and improve your current home! |
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Call Deb today to find out if Refinancing Your
Mortgage
Makes Sense for You!
Refinance
Considerations
Suite 800
