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If you haven't taken a look at the interest rate associated with your home mortgage recently, you may be paying thousands of dollars more in interest than you need to be. Most people probably aren't even sure of the exact interest rate they are paying. If this is the case with you, it's time to dig out that paperwork and see. Are you still not sure if it's worth the trouble? Say you have a current mortgage of $100,000 at 9.25%. If you can lower that rate by 2.5%, your monthly rate will be reduced by approximately $177 a month. That's $2,124 a year and over $63,500 for the lifetime of the loan.
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The rule of thumb regarding refinancing a mortgage has been to do so when interest rates fell by 2 percentage points or more. Although still widely accepted, this general rule fails to take into account a large number of factors specific to your circumstances. Factors such as the current interest rate on your mortgage, the current market interest rate, how many years you plan to stay in the home, whether your current mortgage is fixed or variable, whether the mortgage carries a prepayment penalty and how many years you have paid on your current mortgage all will effect whether or not it is beneficial to refinance. Most importantly, however, the rule fails to take into account that it is now possible to find loans that have no discount points and reduced closing costs. These costs used to be standard and were the primary reason the 2 percentage point rule was developed.
Discount Points (a fee that lenders charge with one point being equal to 1 percent of the loan amount) and closing costs (loan-origination, flood-tracking, loan documentation preparation, recording, appraisal, tax service, title insurance, inspection, credit report, underwriting, escrow, notary, etc fees) can easily add thousands of dollars in up front costs when trying to refinance and get a better interest rate. With some lending institutions now offering no closing cost loans where all these fees are waived, it throws the 2 percentage point rule right out the window.
It also used to be that when looking for a lender to refinance your mortgage, you would visit several of the lenders in your area to find the best rate you could. Times have changed and with technological advances such as the Internet, you are no longer limited to choosing among your local lenders. There are a number of Internet sites that will take your information and have lending institutions compete on giving the best rates for the type of loan you want. Better yet, there are a alrge number of resources at your fingertips to make you better informed about the refinancing process. By using a simple mortgage calculator, you can quickly find out if it makes sense for you to refinance your mortgage.
One of the first actions you want to take is to do a check of interest rates. You will need to decide if you want a fixed or variable rate loan. A variable rate loan will initially give you a lower rate, but will be allowed to float after a determined number of years. If you are sure that you will be moving in a certain number of years, this type of loan can be an advantage and save you money. If you are not sure and may be living in the house for a long time, a fixed rate loan probably makes more sense.
Once you've determined the type of loan you are looking for, the Internet is a good place to start, but it's also worthwhile to check advertisements in your local paper. When you find a rate that you like, take it to your current lender and see if they can match it. If you have been a realiable customer, they may match the deal to keep you even if it is lower than their regularly advertised rates.
When comparing competing offers, keep an eye on what the lenders are charging for closing costs. These costs can vary widely, so make sure to have them all spelled out when the offer is made. Some lenders may try to raise these in an attempt to give a lower interest rate. As mentioned before, if you look around, it is often possible to find institutions that have done completely away with these while still offering reasonable interest rates.
Finally, it's not worthwhile trying to predict the market. If you find a rate that, in consideration with all your personal refinancing factors, will save you money, don't stand around hoping that rates will go even lower. Take it. If rates do continue to fall, you can always refinance again.
ADDITIONAL MORTGAGE SAVINGS TIP
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If you made a down payment of less than 20% when you first purchased your house, there is a good chance that you were required to purchase private mortgage insurance (PMI). This extra monthly charge gives you no benefit. If you currently own more than 20% equity in your home, then make sure to cancel the PMI when you refinance. It also may be possible to cancel this charge without even refinancing. Contact your lender for more information.
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The rule of thumb regarding refinancing a mortgage has been to do so when interest rates fell by 2 percentage points or more. Although still widely accepted, this general rule fails to take into account a large number of factors specific to your circumstances. Factors such as the current interest rate on your mortgage, the current market interest rate, how many years you plan to stay in the home, whether your current mortgage is fixed or variable, whether the mortgage carries a prepayment penalty and how many years you have paid on your current mortgage all will effect whether or not it is beneficial to refinance. Most importantly, however, the rule fails to take into account that it is now possible to find loans that have no discount points and reduced closing costs. These costs used to be standard and were the primary reason the 2 percentage point rule was developed.
Discount Points (a fee that lenders charge with one point being equal to 1 percent of the loan amount) and closing costs (loan-origination, flood-tracking, loan documentation preparation, recording, appraisal, tax service, title insurance, inspection, credit report, underwriting, escrow, notary, etc fees) can easily add thousands of dollars in up front costs when trying to refinance and get a better interest rate. With some lending institutions now offering no closing cost loans where all these fees are waived, it throws the 2 percentage point rule right out the window.
It also used to be that when looking for a lender to refinance your mortgage, you would visit several of the lenders in your area to find the best rate you could. Times have changed and with technological advances such as the Internet, you are no longer limited to choosing among your local lenders. There are a number of Internet sites that will take your information and have lending institutions compete on giving the best rates for the type of loan you want. Better yet, there are a alrge number of resources at your fingertips to make you better informed about the refinancing process. By using a simple mortgage calculator, you can quickly find out if it makes sense for you to refinance your mortgage.
One of the first actions you want to take is to do a check of interest rates. You will need to decide if you want a fixed or variable rate loan. A variable rate loan will initially give you a lower rate, but will be allowed to float after a determined number of years. If you are sure that you will be moving in a certain number of years, this type of loan can be an advantage and save you money. If you are not sure and may be living in the house for a long time, a fixed rate loan probably makes more sense.
Once you've determined the type of loan you are looking for, the Internet is a good place to start, but it's also worthwhile to check advertisements in your local paper. When you find a rate that you like, take it to your current lender and see if they can match it. If you have been a realiable customer, they may match the deal to keep you even if it is lower than their regularly advertised rates.
When comparing competing offers, keep an eye on what the lenders are charging for closing costs. These costs can vary widely, so make sure to have them all spelled out when the offer is made. Some lenders may try to raise these in an attempt to give a lower interest rate. As mentioned before, if you look around, it is often possible to find institutions that have done completely away with these while still offering reasonable interest rates.
Finally, it's not worthwhile trying to predict the market. If you find a rate that, in consideration with all your personal refinancing factors, will save you money, don't stand around hoping that rates will go even lower. Take it. If rates do continue to fall, you can always refinance again.
ADDITIONAL MORTGAGE SAVINGS TIP
-------------------------------------------------------------------------------
If you made a down payment of less than 20% when you first purchased your house, there is a good chance that you were required to purchase private mortgage insurance (PMI). This extra monthly charge gives you no benefit. If you currently own more than 20% equity in your home, then make sure to cancel the PMI when you refinance. It also may be possible to cancel this charge without even refinancing. Contact your lender for more information.
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