When it is right to refinance?
The General Rule
If you plan to stay in your home for longer
than the amount of time it will take to realize
your savings, it makes sense to refinance.
Who Cannot Refinance
Don’t think that you cannot refinance just because your home’s value has decreased
Many homes have lost some value in our area,
but not as much as has been reported in the press.
It is a case-by-case basis. If you
have at least 20% equity in your home at its
current value, you can most likely get the
lowest interest rate available. An apprasier
will set the current value using very specific
criteria. Don’t second guess this process!
Of course, if your home is not worth the
remaining balance on your existing loan, you cannot refinance.
Unless you qualify for one of the programs recently introduced
by the federal government. Ask your current lender about that.
If you have done damage to your credit rating by paying late on
your mortgage or have lost your job recently, you most likely
will not qualify. A quick call to a good lender will answer that
question–at no charge to you.
Good credit risks with equity of over 20% have seen under 4%
mortgage rates recently.
Some lenders are offering NO FEE refinancings.
Cost ÷ Savings = Months to Break Even
Determine how many months it
will take to pay off the costs and realize a
savings. For example, if you decrease your
mortgage payment by $200 and it cost
$1,200 to refinance, it would take 6 months.
Use the Refinance Mortgage Calculator below to determine the savings you will see at a new interest rate. Be sure you are comparing apples to apples–the same term (15 or 30 years, for example) and the same type of rate (fixed, not adjustable). Then, take the costs given to you by your refinancing lender to divide by the savings. This is the number of months it will take to pay off the costs and realize a savings.
- Enter the principal balance amount from your current mortgage and the new interest rate.
- Enter the costs given to you from your refinancing lender. They are comprised of 3 numbers: lender fees, appraisal cost and title insurance premium. DO NOT include any pre-paid interest to the end of the month or any escrow amounts for taxes and insurance. You should shop for the lowest costs. Lender fees should be close to $1,000, appraisal fees around $400. Title insurance for the lender will be the biggest number. It is a state-mandated amount, but discounts exist if you have a policy less than 7 years old or if you use an approved attorney. (On a $400,000 loan, title might cost $1,400). Don’t assume the lender’s title company is giving you the best rate. Shop around. You are legally entitled to have your own title company. Contact us for referrals to good title agents and lenders–we have no affiliation with any of them. Some lenders are offering NO FEE refinancings. Rates might be a bit higher, though.
- The answer is the number of months it will take to start seeing your savings. Try it below.
The Refinance Mortgage Calculator
Choosing a Lender
What to ask for the answers you need to know
- What are the terms you recommend for my loan?What percentage down?
What length term? (15 or 30 years eg.)
Fixed or adjustable rate?
What rate do I qualify for?
When will you be able to tell me that?
- Can I prepay all or in part with no fee?
- Will there be a second loan? (same questions as above)
- Will I have to pay PMI?
- Why are you recommending this for me and what other alternatives did you consider and dismiss?
- What is the highest the rates could go without my being no longer qualified for this loan?
- How long do you need to get a commitment once I enter into an agreement to buy a home?
- How long will that commitment be good for?
- Can I “buy” the right not to escrow taxes and insurance?
- Can I use money from my Roth IRA towards the purchase?
- Do you charge anything to lock the rate?
- What do I have to do to lock? Is an email ok?
- How long is the rate lock good for?
- Can I opt to “float’ the rate down if rates decline after I lock?
- Can I do that right before the closing, or is there a cut-off date?
- If there are 2 of us, can we have just the one with good credit on the loan?
- Can we both own the house in that event?
- Will the non-borrowing party have to sign away ownership rights?
- Do you provide the new Closing Disclosure and explain which charges can change?
- Have you seen any appraisal issues lately and how have you handled them?
- Do you come to the closing?
“Groups such as the Consumer Federation of America and AARP recommend using buyer’s agents.”
“Sage Realty not only helped me find my new home, they put me in touch with the right mortgage company to get me qualified at a great rate. You will always be a top priority at Sage.”
– R. Kelley, Ardmore, PA