Title:
Guide To
Refinancing Your Mortgage
Word Count:
550
Summary:
Refinancing can
be worthwhile, but it does not make financial sense for everyone. It is a
balancing act between the potentially huge savings over a 30 year mortgage vs.
the large cost of refinancing. Whether or not refinancing is a wise decision is
purely a numbers matter.
Keywords:
mortgage
Article Body:
Refinancing your
mortgage can mean great savings for you and your family. Replacing your
existing mortgage with a lower interest loan, changing the term of your loan,
or even consolidating all your debts into this new loan could save you money,
both monthly and over the life of the loan.
The rule of thumb is when interest rates are 1.5 to 2% lower than you are
currently paying on your mortgage, it's time to consider refinancing.
Would Refinancing Be Worth It?
Refinancing can be worthwhile, but it does not make financial sense for
everyone. There are a number of items to consider, such as how long you plan to
stay in the house. Most sources say that it takes at least 3 years to fully
realize the savings from a lower interest rate, given the costs of the
refinancing.
Refinancing can be a good idea for homeowners who:
* Have an adjustable-rate mortgage (ARM) and want a fixed-rate loan to have the
certainty of knowing exactly what the mortgage payment will be for the life of
the loan.
* Want to build up equity more quickly by converting to a loan with a shorter
term.
* Want to draw on the equity built up in their house to get cash for a major
purchase or for their children's education.
What Are the Costs of Refinancing?
Costs can vary significantly from area to area and from lender to lender, so
the following are estimates only. Your actual closing costs may be higher or
lower than the ranges indicated below.
Application Fee $75 - $300. This charge
imposed by your lender covers the initial costs of processing your loan request
and checking your credit report.
Appraisal Fee $150 - $400. This fee
pays for an appraisal, which is a defensible estimate of the value of the
property.
Survey Costs $125 - $300.
Homeowner's Hazard Insurance $300 -
$600.
Lender's Attorney's Review Fees $75 - $200. The lender will usually charge you
for fees paid to the lawyer or company that conducts the closing for the
lender.
Title Search and Title Insurance $450 -
$600. This charge will cover the cost of examining the public record to confirm
ownership of the real estate, and the cost of an insurance policy.
Home Inspection Fees $175 - $350.
Loan Origination Fees 1% of loan. The
origination fee is charged for the lender's work in evaluating and preparing
your mortgage loan.
Mortgage Insurance 0.5% - 1.0%.
Depending on the type of loan you have and other factors, another major expense
you might face is the fee for private mortgage insurance.
Points 1% - 3%. Points are prepaid
finance charges imposed by the lender at closing to increase the lender's yield
beyond the stated interest rate on the mortgage note. One point equals 1% of
the loan amount.
Prepayment Penalty. A prepayment penalty on your present mortgage could be the
greatest deterrent to refinancing. The mortgage documents for your existing
loan will state if there is such a penalty. In some loans, you may be charged interest
for the full month in which you prepay your loan. In the future, always make
sure there is NO prepayment penalty.
In Conclusion
A homeowner should plan on paying an average of 3 - 6 % of the outstanding
principal in refinancing costs, plus any prepayment penalties and the costs of
paying off any second mortgages that may exist.
Whether or not that is a wise decision is purely a numbers matter.