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Home Refinancing |
Many homeowners are taking advantage of the current low interest rates. If you own your
home, you might consider refinancing too. To determine if you should refinance your
mortgage loan, several factors will come into play. A few of these include the number of years
you plan to live in your current home, the amount it will cost to refinance, and even your tax
bracket. To see if you would be a good candidate for refinancing, considering that there are
several costs involved with refinancing, which is the money you will have to pay. For example,
you might be required to pay points, settlement costs, closing costs, attorney fees, and so on.
Because a refinanced loan goes through much the same process as the original loan, you will
have to be prepared to pay out some money to secure the loan.
You also want to shop around for points and interest rate. These figures will vary from one
lender to another so it is important that you look at multiple options. Regarding the points,
expect that each point paid will add 1/8 to 1/4 of 1% to the offered interest rate. That means
the more points you pay, the higher the interest rate. However, you can pay more money for
those points, reducing the interest rate.
Typically, when you have a mortgage loan for a short time, the points become expensive.
Therefore, if you plan to live in your home for many years to come, you should consider paying
the additional points to keep the interest rates down. You may find a lender that will offer to
finance the points, which simply goes onto the balance rather than paying them up-front. If you
choose this option, keep in mind that your monthly payment would be a little higher but if you
are tight for funds, this might be a good option.
When it comes to settlement costs, in most cases, this expense will cover the appraisal, credit
check, attorney fees, title search, loan application, and loan origination. Other fees that you
may or may not be required to pay includes transfer taxes and recording fees. If possible,
think about refinancing for a 15-year fixed rate mortgage over a 30-year loan. Although your
monthly payments will be higher, you also build equity quickly and pay off the home loan in half
the time.
If you go with a 30-year loan, remember that paying just one extra payment a year, whether in
a lump sum or increments, you will reduce the length of the loan to 18 years. If you can pay
more than one payment a year that will be lowered even more. Every lender is required under
the Truth in Lending Act to provide you with a written statement that outlines all of the
associated costs and the financing terms. Be sure you receive this for your own protection.
If not offered this statement, you might think about talking to a different lender.
Although there is a general rule to follow that states if you can refinance your mortgage for 2%
or more off the current interest rate, then you should refinance and if not, you should wait.
However, if you can find zero points and refinancing that is low cost, you should still consider
refinancing.
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