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Refinance Loan
Refinancing can save you money, but the downside is that
you have to restart amortization. Once again you are paying mostly
interest at the beginning of your loan. But there are ways you can
get around this, keeping your original pay off period and saving
on interest charges.
Short-Term Refinance Loans
Lenders offer a variety of terms – 30, 25, 20,
or 15 years. By refinancing for a shorter term you can closely match
your original pay off date. Unfortunately, lenders don’t fraction
year terms – such as 22 years and 4 months.However, by choosing
a shorter term, you may qualify for even lower rates. You can also
pay off your loan sooner, further increasing your interest savings.
Self Increasing Your Payment On Refinance Loans
Another option is to refinance your mortgage
for 30 years. Then make an additional principal payment each month
to pay off your loan at the original date. You can use a mortgage
calculator to determine this amount. You can also make one extra
payment a year to reach the same results.With
this approach, you have control over your payments. For some this
can be seen as a negative, since there isn’t the required payment.
You can also pay off your loan earlier by increasing your principal
payment even more
Shopping online for a home loan is quickly becoming "the way" to
get a home loan. You can go online, and with one easy application,
get competitive rate quotes from a variety of mortgage lenders.
All you have to do is sit back and let the best refinance home loan
quotes come to you. You're in the drivers seat, just pick and choose,
to get the best loan deal possible. I just finished reading an article
titled, "E-mortgages on the way." Would you like to know some interesting
facts about modern mortgage loans? How about... homebuyers will
soon be getting mortgages online and closing them, almost as easily
as purchasing an airline ticket. Here's another: Borrowers will
go through the entire loan process, from applying online to completing
all the legal requirements, without the usual piles of clunky paperwork.
There are scores of first rate lenders on the Internet waiting to
assist you. All you have to do is apply online, and the competing
loan quotes will come to you. Just sit back and choose the loan
quote you like the best.
Home Refinancing Basics
In recent years, millions of homeowners have taken advantage
of low rates and refinanced their mortgages. This article describes
the advantages and possible pitfalls associated with a "refi."
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| Home Refinancing Basics |
| In recent years, Americans seeking to take advantage of low
interest rates have lined up to refinance their mortgages. In
fact, refinancings hit an all-time high in 2003, and remained
high in both 2004 and 2005, according to the Mortgage Bankers
Association of America.
But while it's true that refinancing has the potential to
help you reduce the costs associated with borrowing money
to own a home, it is not necessarily a strategy that makes
sense for every individual in every situation. So before you
make a commitment to refinance your mortgage, its important
to do your homework and determine whether such a move is the
right one for you.
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| To Refinance or Not |
| The old and arbitrary rule of thumb said that a refi only
makes sense if you can lower your interest rate by at least
two percentage points for example, from 9% to 7%. But what really
matters is how long it will take you to break even and whether
you plan to stay in your home that long. In other words, make
sure you understand — and are comfortable with — the
amount of time it will take for your overall savings to compensate
for the cost of the refinancing.
Consider this: If you had a $200,000 30-year mortgage with
an 8% interest rate, your monthly payment would be $1,468.
If you refinanced at 6%, your new monthly payment would be
$1,199, a savings of $269 per month. Assuming that your new
closing costs amounted to $2,000, it would take eight months
to break even. ($269 x 8 = $2,152). If you planned to stay
in your home for at least eight more months, then a refi would
be appropriate under these conditions. If you planned to sell
the house before then, you might not want to bother refinancing.
(See below for additional examples.)
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| Remember — All Mortgages Are Not Created Equal |
| Don't make the mistake of choosing a mortgage based only on
its stated annual percentage rate (APR), because there are a
variety of other important variables to consider, such as:
The term of the mortgage — This describes the amount
of time it will take you to pay off the loan's principal and
interest. Although short-term mortgages typically offer lower
interest rates than long-term mortgages, they usually involve
higher monthly payments. On the other hand, they can result
in significantly reduced interest costs over time.
The variability of the interest rate — There are two
basic types of mortgages: those with "fixed" (i.e.,
unchanging) interest rates and those with variable rates,
which can change after a predetermined amount of time has
passed, such as one year or five years. While an adjustable-rate
mortgage (ARM) usually offers a lower introductory rate than
a fixed-rate mortgage with a comparable term, the ARM's rate
could jump in the future if interest rates rise. If you plan
to stay in your home for a long time, it may make sense to
opt for the predictability and security of a fixed rate, whereas
an ARM might make sense if you plan to sell before its rate
is allowed to go up. Also keep in mind that interest rates
hovered near historical lows in recent years and are more
likely to increase than decrease over time.
Points — Points (also known as "origination fees"
or "discount fees") are fees that you pay to a lender
or broker when you close the deal. While a "no-cost"
or "zero points" mortgage does not carry this up-front
cost, it could prove to be more expensive if the lender charges
a higher interest rate instead. So you'll need to determine
whether the savings from a lower rate justify the added costs
of paying points. (One point is equal to one percent of the
loan's value.)
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How Much Would You Save?
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A homeowner with a 30-year, $200,000
mortgage charging 8% interest would pay $1,468 each
month. The table below illustrates the potential monthly
savings and the various break-even periods that would
result from refinancing at different rates.
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Rate After Refinancing
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New Monthly Payment
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Monthly Savings
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Months to Break Even*
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7.5%
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$1,398
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$70
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29
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7.0%
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$1,331
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$137
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15
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6.5%
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$1,264
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$204
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10
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6.0%
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$1,199
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$269
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8
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5.5%
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$1,136
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$332
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7
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5.0%
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$1,074
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$394
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6
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*Assumes $2,000 closing costs. Rounded up to the next
highest month.
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A Closer Look at Mortgage Fees
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Using data collected
during 2003, researchers at Bankrate.com determined
the average fees charged to consumers who borrow
money to buy a home. Based on a loan of $180,000,
the fees broke down as follows:
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Average Lender/Broker Fees
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Administration fee:
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$336
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Application fee:
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$205
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Commitment fee:
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$498
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Document preparation:
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$194
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Funding fee:
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$228
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Mortgage broker fee:
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$839
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Processing:
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$320
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Tax service:
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$73
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Underwriting:
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$269
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Wire transfer:
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$31
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Third-Party Fees
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Appraisal:
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$327
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Attorney or settlement fees:
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$445
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Credit report:
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$29
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Flood certification:
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$17
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Pest & other inspection:
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$68
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Postage/courier:
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$45
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Survey:
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$174
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Title insurance:
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$605
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Title work:
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$200
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Government Fees
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Recording fee:
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$76
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Various taxes:
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$1,339
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| Stick With What You Know? |
Finally, keep in mind that your current lender may make it
easier and cheaper to refinance than another lender would. That's
because your current lender is likely to have all of your important
financial information on hand already, which reduces the time
and resources necessary to process your application. But don't
let that be your only consideration. To make a well-informed,
confident decision you'll need to shop around, crunch the numbers,
and ask plenty of questions.
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Summary
The decision to refinance should only be made if the long-term
savings outweigh the initial expenses. To calculate your break-even
point, divide the cost of the refi by your monthly savings.
The resulting figure represents the number of months you will
need to stay in the home to make the strategy work.
Don't select a new mortgage based only on its annual percentage
rate.
Also evaluate the term of the loan, whether the interest rate
is fixed or variable, and the relative merits of paying up-front
fees in exchange for a lower rate.
Your current lender already knows you and has your financial
information on file, so you may be able to get a better deal
that way, instead of going to a new lender.
To get the best possible refinancing deal, you'll need to shop
around, crunch some numbers, and ask a lot of questions.
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| Source: http://finance.yahoo.com/how-to-guide/loans/12821
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