Here are some questions to help you make a decision about when to refinance.
1. Why are you considering a refinance?
There are several good reasons to refinance. A lower interest rate can save you thousands of dollars over the life of your loan resulting in better cash flow and a lower monthly payment. Debt consolidation can also save you money by combining high interest credit card and other loans payments into a single lower monthly payment. Refinancing can also allow you to tap into the equity in your home and take cash out. This is a good, and often a cheaper way to make home improvements that will increase the value of your home.
2. How much will I save each month?
It depends on the type of refinance you’re doing. If you’re simply getting a lower interest rate your monthly payments will be less. If you’re doing a consolidating refinance it will depend on the amount of debt you’re rolling into your loan and the amount of time or term you’ve selected to pay off the loan. The same is true if you’re borrowing to get cash out.
3. How much equity have you accrued?
To determine how much equity you have in your home take the total of your remaining mortgage debt and subtract it from the current value of your home. The amount of equity you have will determine the amount of debt you can consolidate or the amount of cash you can take out.
4. How much better is the new rate compared with your original rate?
That depends on a variety of factors. The market basically determines where rates start. Your credit profile and loan-to-value will determine what rate you are offered. If you’d like to get an even lower rate you may want to consider purchasing discount point(s). Each point you purchase equals 1% of your loan amount. For example, 1 point on a $200,000 loan would cost $2,000. Discount points lower the interest rate for the entire term of the loan and may be tax deductible. Consult your tax adviser to see if you qualify. Before you consider buying points ask yourself how long you plan to remain in your home. Work with your Embrace Mortgage Specialist to determine how long it would take to recoup the money you’ve paid for you point(s). If you don’t intent to stay in your home buying points may not be a wise.
5. What term loan are you considering?
Most mortgage loans are offered in 15 or 30 year terms. Obviously the shorter the term the higher the monthly payment. If you can pay your loan off more quickly you can save on the interest on the loan over time.
6. What are the costs of the fees associated with my loan?
Your Embrace Mortgage Specialist will provide you with a Loan Estimate within three business days of your application. Page 2 of the Loan Estimate includes a breakdown of the cost and fees associated with your loan. The Loan Estimate also includes the loan amount, interest rate, monthly principle and interest payments. A projected total monthly payment calculation, estimated taxes, insurance (property taxes, homeowner’s insurance and premium mortgage insurance if applicable). and recording fess and taxes. Estimated closing costs and cash to close are also included. You will receive a Closing Disclosure at least there business days prior to your closing with final numbers.
7. How long are you planning to be in the home?
How long you intend to stay in your home can have real bearing on the type of loan you should consider. For example if you know you will move with the next five to seven years you might want to consider an Adjustable Rate Mortgage (ARM) to get a lower rate and a lower monthly payment. If you plan to remain in your home longer it might be worth your while to take fixed rate mortgage and purchase point(s) to lower your monthly payment.