When should I refinance?
Ever hear the old rule of thumb that states you should only consider refinancing if the new interest rate will be at least 2 points under your present rate? Maybe several years ago that was good advice, but since refinance costs have been falling recently, it may be a good time to look into it. A refinanced mortgage loan can be worth its cost many times over, factoring in the benefits that it brings, along with a lower interest rate.
When you refinance, you may have the ability to lower the interest rate and monthly payment , perhaps significantly. You may also have the option to "cash out" a portion of the built-up equity in your home, which you will be able use to consolidate debts, improve your home, or finance a vacation. With reduced interest rates, you might also get the chance to build your home equity more quickly by changing to a shorter-term mortgage loan.
Fees and Expenses
All these advantages do come with some expense, though. You'll have the same sort of expenses and fees as with your existing home loan. Included in the list might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You could need to pay points (prepaid interest) to attain a lower rate of interest. If you pay (on average) three percent of the loan amount initially, the savings for the life of the refinanced mortgage can be substantial. Please consult with a tax professional before acting on rumors that any paid points may be deducted on your federal income taxes.
Another cost that a borrower might consider is that a reduced rate of interest will reduce the interest amount you will deduct from your taxes.
Call us at 310-791-0854 to help you do the math.
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Most people find that the savings per month balance out the up-front expenses of a refinance. We can help you find out what your options are, considering the effect a refinance might have on your taxes, how likely you might be to sell in the near future, and your cash on hand. Call us at 310-791-0854 to get you started.
Which Refinancing Program is Best for Me?
Even though it seems like it sometimes, there are not as many loan programs as there are borrowers!
Contact us at 310-791-0854 and we can match you with the loan program that is ideal for your needs. What do you hope to achieve with your refinance loan? Keeping in mind the following will help you begin your decision process.
Reducing Your Monthly Payments
Are your refinance goals to lower your rate and consequently your mortgage payments? In that case, getting a low, fixed-rate loan may be a wise option for you. Perhaps you currently hold a higher rate fixed rate mortgage, or perhaps you hold an ARM — adjustable rate mortgage — where the interest rate can vary. Even as interest rates rise, a fixed-rate mortgage loan must remain at the same, low interest rate, unlike an ARM. This is especially a good option if you don't think you'll be moving within the next 5 years or so. On the other hand, if you do see yourself moving before too long, an ARM with a small initial rate might be the best way to reduce your monthly payments. By refinancing your existing mortgage loan, you could wind up paying more in finance charges over the life of the loan.
Are you hoping to cash out some of your equity with your refinance? Your house needs new carpet; your daughter has been accepted to University and needs tuition; or you have a special family vacation planned. With this in mind, you will want to look for a loan higher than the balance remaining of your existing mortgage loan.With this goal, you want to qualify for a loan for a higher number than the remaining balance on your current mortgage. If you've had your current mortgage loan for a long time and/or have a loan whose interest rate is high, you may be able to do this without making your mortgage payment bigger.
Consolidating Your Debt
Do you hold other debt, perhaps with a high interest rate, that you'd like to consolidate? If you have the equity in your home for it, taking care of other debt with higher interest than the rate on your mortgage (like home equity loans, student loans, or credit cards) means you can save possibly hundreds of dollars in your monthly budget.
Building up Equity More Quickly
Are you hoping to fatten up your home equity faster, and pay your mortgage off sooner? If this is your hope, the refinance loan can switch you to a mortgage loan program with a shorter term, such as a 15 year loan. Although your monthly payment amount will likely be more, you will save on interest; so your equity will build up faster. On the other hand, if your existing longer term loan has a small balance remaining, and was closed a number of years ago, you may be able to make the change without paying more each month. To help you understand your options and the many benefits of refinancing, please contact us at 310-791-0854. We will help you reach your goals!
Should I get a fixed rate or adjustable rate loan?
With a fixed-rate loan, your monthly payment never changes for the life of the mortgage. The portion allocated to your principal (the actual loan amount) will increase, however, the amount you pay in interest will decrease accordingly. Your property taxes may go up (or rarely, down), and so might the homeowner's insurance in your monthly payment. But generally payments on your fixed-rate loan will be very stable.
When you first take out a fixed-rate loan, most of the payment is applied to interest. The amount paid toward your principal amount goes up slowly each month.
You can choose a fixed-rate loan in order to lock in a low rate. People select fixed-rate loans because interest rates are low and they want to lock in at the lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can offer more stability in monthly payments.
If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to assist you in locking a fixed-rate at a favorable rate. Call Midgate Mortgage at 310-791-0854 to discuss how we can help.
There are many different types of Adjustable Rate Mortgages. Generally, interest rates on ARMs are based on an outside index. A few of these are:
the 6-month CD rate,
the 1 year rate on Treasure Securities,
the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.
Most ARMs feature this cap, so they can't go up over a specified amount in a given period. Your ARM may feature a cap on how much your interest rate can increase in one period.
In addition, the great majority of ARM programs have a "lifetime cap" — the rate won't go over the cap percentage.
ARMs usually start at a very low rate that may increase over time. You may have heard about "3/1 ARMs" or "5/1 ARMs". In these loans, the introductory rate is set for three or five years. It then adjusts every year. These loans are fixed for a number of years (3 or 5), then adjust. Loans like this are usually best for borrowers who expect to move within three or five years.
You might choose an Adjustable Rate Mortgage to get a very low initial interest rate and plan on moving, refinancing or simply absorbing the higher rate after the initial rate goes up. ARMs are risky when property values decrease and borrowers are unable to sell or refinance.
Have questions about mortgage loans? Call us at 310-791-0854. It's our job to answer these questions and many others, so we're happy to help!
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