. Should I refinance? if the rate on your ARM is about
The answer depends on your to adjust and you think the rate
financial goals. A desire will go up, it may make sense to
to lower your interest rate get a fixed-rate mortgage.
and/or payment is good reason to
refinance, but there are other Q. Are interest rates higher for
things to take into account: a cash-out refinance?
The interest rate you pay on a
• How long do you expect to be in cash-out refinance loan will
the home? generally be the same rate that
• How much equity do you have in you pay on a non-cash-out loan.
the home? There may be an incremental fee
• How much will your closing associated with a cash-out
costs be? refinance loan. This depends on
• To get that low rate, will you the specific loan program you
have to pay points? choose and the loan-to-value
• Will your lower payments make ratio. Using the equity in your
up for the closing costs, fees home to pay off other bills can
and points (if any)? be a wise strategy. You might
want to consider taking some
Q. Should I refinance from an money out to pay off credit cards
adjustable-rate to a fixed-rate bills, auto loans and any debt
mortgage? that has interest that is not
It’s generally a good idea to get tax-deductible. Your tax advisor
the lowest fixed-rate possible. will be able to tell you if you
However, if you're in the first can deduct the interest on the
year of a five-year adjustable money you take out to pay off
rate mortgage (ARM) and you plan that debt.
on moving in three years, it may
not make sense to refinance. But Q. When should I “lock in” an
interest rate? points you pay. If you are buying
This depends on which way a home, however, points paid are
interest rates will go, and no a tax-deductible expense for that
one can be certain of that. year. Please consult your tax
Historically, rates go up much advisor.
faster than they come down. If
you're thinking about buying a Q. Are there loans that have no
home or refinancing your closing costs?
mortgage, get the good rate There are few loans that truly
now—you can always refinance have no closing costs. Sometimes
later if rates drop again. Any lenders will not charge
near-future drop in interest application fees and agree to pay
rates may not be drastic enough the appraisal and title fees, but
to impact your monthly mortgage they may increase the interest
payment. Of course, every rate. Lenders can also roll the
situation is different, so it's costs into the amount of your
important to consider all of your loan. Therefore, because you're
options. paying no costs up front, it's
called a "no closing cost" loan.
Q. Should I pay points to get a Slightly increasing your mortgage
lower rate? might be acceptable to you. Bear
If you are refinancing your in mind, however, that this is
mortgage, paying points may not not really a cost-free loan.
be your best option. Points paid
on a refinance can be deducted Q. How long does refinancing
from your taxes only in small take?
increments—1/30th a year for a Refinancing normally takes two to
30-year mortgage. This means it four weeks. The length of time
could be several years before depends on several factors:
your lower rate makes up for the
• Has your home recently been require pre-payment of property
appraised? taxes. When refinancing, however,
• How accessible is your home to your old mortgage will most
appraisers? likely have money in escrow that
• Are there comparable properties can cover costs. Some borrowers
in your neighborhood? get short-term loans while this
escrow transfers back to them.
Getting an appraisal can be the Most pay the money at the
longest part of the process. For closing. They know they'll get it
one thing, it can be difficult to back when their escrow is
schedule an appraiser during returned.
periods in which appraisers are
performing a large number of Q. Is there a way to reduce
appraisals. This might be the closing costs?
case during a refinance boom, for If you're refinancing, you may be
instance. You can do your part to able to eliminate some costs by
move the process forward by talking to your lender. Your
making sure your paperwork is lender might reuse your last home
prepared. appraisal or your credit report
if they are recent enough.
Q. How much money will I need to Another possible option? Have
bring to a closing? your mortgage lender re-certify
Generally, you need two percent some documents, such as the
of the purchase price of the home appraisal and the title, for less
for pre-paid interest to cover than the cost of getting new
the time between the date you documents.
close and your first mortgage
payment. Some states may also
About the Author:
Matt Schaub and Silas Ellman started ReallyGreatRate with a simple idea: give every consumer the speed and convenience of online loan service, while providing the most personalized financial solutions available. For more free info, go to ReallyGreatRate
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