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Guide To Refinancing Your Mortgage
By: Ron King
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.
About the Author:
Visit http://www.mortgagerefinancetoday.com to learn more. Ron King is a
full-time researcher, writer, and web developer. Copyright 2005 Ron King. This
article may be reprinted if the resource box is left intact. |
