People refinance for many reasons
– to lower monthly payments, to pay off a loan, build equity faster,
convert a variable rate into a fixed rate mortgage etc.
considering refinancing you not only need to know what questions to ask
about refinancing but you also need to answer some questions
yourself before you seek out the advice of a lender.
The questions you need to
ask yourself include how long do you plan on residing in your home and how
long have you held your current mortgage?
In order to make the costs of refinancing
worth it, you need to be in your home long enough to reap the benefits.
Experts recommend that anything more than five years is good. If you
intend to move before that time you will have little to gain from refinancing.
And if you plan on moving in three years or less, it makes virtually
no sense at all to refinance.
That said, if you’re
nearing the end of a fixed rate loan (in other words, you’ve already
taken advantage of most of your tax deductible interest), a new loan could
prove beneficial. The advantage here is you can deduct the interest and
prorated points year by year.
as to the questions to ask about refinancing, you need to know what
refinancing will cost you in the way of points, transaction fees and other
refinancing lender will be able to provide you with an amortization
chart showing the real expense of pre-paying interest points. You may want
to also ask for a modified Annual Percentage Rate (APR) spreadsheet that
combines costs over the years you plan to
reside in your home. That said, if you’re considering a no-points
refinancing, be careful to weigh the costs of any additional
interest and other fees that may be hidden in higher mortgage rates.
Among your questions to
ask about refinancing, you need to know if interest rates are higher
for a cash-out refinance. The rate of interest you need to pay on a
cash-out refinance loan is usually the same you would pay on a non-cash
out loan. However, there may be an incremental fee associated with
cash-out refinancing depending on the loan program you select and
the loan to value ratio.
can be a smart move. Using the equity in your home to pay off other bills
can really make a difference to your bottom line. You may wish to pay off
any and all debts that have interest that is not tax deductible. Chances
are good you may be able to deduct the interest on refinancing money. To
be sure check with your tax advisor.
Next, you should be asking
if you can “lock in” an interest rate. Nobody can predict what
interest rates will do but historically rates tend to go up faster than
they come down. So if you’re thinking about refinancing your
mortgage this is among one of the most important questions to ask about
It’s important for you to get
the best rate you can now. Remember you always have the option of refinancing
later if the rates do drop again. However, you will also want to bear in
mind that any future interest rates need to be substantial enough to
impact your monthly loan payment.
Before sitting down with a
lender take the time to make a list of the questions to ask about
refinancing. Having all your questions answered will help you make an
informed decision about whether refinancing is right for you.