When should I consider Refinancing?
Interest Rate Reduction - It's generally worth consideration of a refinance when mortgage rates are 0.75%-1.00% lower than the current rate on your loan. This determination is based on the interest savings annually you may achieve with the terms of the refinance. Your savings generally depends on your loan amount, amortization and interest rate changes. Your mortgage loan Officer at Old Fort Bank can help you calculate potential benefits by looking at your options.
Aside from interest expense savings, there are a few other reasons you may consider refinancing your mortgage loan. Below are a few examples:
Debt Consolidation and Improved CashFlow – Using the equity in your home for a cash out refinance may benefit you by paying off other existing debt with higher rates and shorter amortizations. This could potentially benefit you by improving cash flow and realizing interest rate savings.
Home Improvement or Repairs – A refinance of a first mortgage may be the best option for you to fund home improvements.
Getting out of an ARM Loan (Adjustable Rate Mortgage) – ARM’s are a good option in certain rate environments and can potentially be your best option based on the amount of time you plan to be in a home. As those conditions and plans sometimes change, you may benefit from refinancing your mortgage balance to a fixed rate loan.
How much does it cost me to Refinance?
In most cases you will pay a comparable amount to that of your original home purchase loan. It is always best to get an estimate of closing costs to determine the benefits of refinancing. Closing costs can often be financed into the new refinance loan, and in some situations the lender can pay or provide credit towards some of those costs. Our mortgage loan officers will help you determine the best value and return on your investment in closing costs.
Most lenders charge fees to refinance a loan. So, if you plan to only stay in the property for a couple of years, your monthly savings may not accumulate to recoup these costs. Example: A lender charged $1,000 to refinance your loan that resulted in saving you $50 each month; it would take 20-months to recoup your initial costs. Some lenders will charge a slightly higher than average interest rate on refinance loans, but will waive all costs associated with the loan. This will depend on the interest rate on your current loan.
Starting with an application fee of $550 to $850 depending on the square footage of the home. This cost typically covers the appraisal fee. In addition, there are fixed costs for services: title search, closing services, title insurance, flood determination, credit report, underwriting fee, processing fee and recording fee. In most cases you will pay the same costs you had with your current home loan closing. Fixed costs can be up to $2500 in addition to title insurance of $3.50 per $1000. It is always best to get a quote for the worst-case scenario to be able to budget the benefits of refinancing. Closing costs can be financed into the loan and in some situations the lender can pay or credit some of the costs depending on market conditions. We do offer “No Closing Costs Options” but in most cases to get the best rate of interest it may be best to pay some costs. Our Mortgage Loan Officers will help you determine the best value and return on your investment in closing costs.
A point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.
Yes, if you plan to stay in the property for a least a few years. Paying discount points to lower the loan's interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front.
Mortgage rates can change from the day you apply for a loan to the day you close the transaction. If interest rates rise sharply during the application process it can increase the borrower's mortgage payment unexpectedly. Therefore, a lender can allow the borrower to "lock-in" the loan's interest rate guaranteeing that rate for a specified time period, often 30-60 days, sometimes for a fee.
It's unsure how interest rates will move at any given time, but your lender may estimate where interest rates are headed. If interest rates are expected to be volatile in the near future, considering locking your interest rate may be good because it allows you to qualify for the loan. Or, if your budget could handle a higher loan payment, or lender's lock fees, you may want to let interest rates "float" until the loan closing.
Even with poor credit getting a home loan is still possible. A lender will consider you to be a risky borrower and to compensate for this they will charge you a higher interest rate, and expect a higher down payment usually 20%-50%. The worse your credit history is, the more you can expect to pay.
Not necessarily, if you've been late with your payments less than 3-times in the past year, and the payments were no more than 30-days late, you still have a good chance at getting a competitive interest rate. Most lenders will accept certain reasons for this like an illness, or job-change, but explanations are required.
There are two important things to consider when choosing one lender over another one:
