October 24th, 2016 7:06 AM by Jackie A. Graves, President
may be tempted by low mortgage rates, but refinancing isn't always the best
Just as it seems mortgage
rates can’t get any
lower, they drop yet again. Today’s mortgage rates are near the lowest we’ve
ever seen. As rates fall, even people who have refinanced their mortgage in the last few years are wondering if
it’s time to refinance again.
brings up the question: Can you refinance too often?
answer is, it depends,” says Ray Rodriguez, regional mortgage sales manager at
TD Bank in New York. “It depends on the answer to several questions: How long
do you plan to stay in the house? Do the benefits outweigh the costs?”
of refinancing varies
by your location, but you typically pay for an appraisal, title insurance and
recording fees, as well as any additional fees charged by the
lender. If, for example, you pay $4,000 to refinance and cut your
payment by $200 a month, you’d need to keep the loan at least 20 months to
get fixated on interest rates,” Rodriguez says. But, for example, cutting the
interest rate on a $200,000 loan from 4 percent to 3.5 percent saves only $56 a
month. If you pay $4,000 in closing costs to refinance, it will take you almost
six years to break even.
the simple math. You also want to look at whether you’re lengthening the time
it will take to pay off your home and how much principal and interest you will
have paid at the end of the break-even period or by the time you sell the house.
“no-cost” loan has costs, though the lender fees may be replaced by a higher
interest rate. “If you’re taking a zero-cost loan, you’re not getting the best
rate,” says Casey Fleming, author of “The Loan Guide: How to Get the Best
Possible Mortgage” and a mortgage professional in the San Francisco Bay Area.
Some loans add the closing costs to the loan balance, which means you’re
financing them over 30 years.
you’re going to stay in the home, paying points (fees based on your loan size)
to get an even lower interest
rate might be a better
deal. “If you keep the home, it’s by far the cheapest way to go,” Fleming says.
“If you’re going to keep it more than about five years, it makes sense to pay
as many points as a lender will allow you to get the lowest rate possible.”
don’t need to worry about dinging your credit since refinancing doesn’t hurtyour
credit score in any
doesn’t harm you in any way with the exception that you’re always restarting
your amortization period,” Fleming says. “Every time you get a new loan, your
score drops. Once you demonstrate you’re making payments on the new loan, it
goes back up.”
refinancing, in which people refinance into larger loans as their home’s value
grows, is regaining popularity as Americans add more equity, Fleming says. This
can be good option for homeowners who want to remodel
their home or build an
addition, but it can be trouble for people who take cash out for the wrong
reason – to buy a car, for example – which will be long gone before the 30
years of payments are made.
you’re taking out cash to pay
off credit card debt, experts warn you to be careful. If the debt
was caused by a one-time event such as a health crisis or job loss, refinancing
might be a good alternative to paying 24 percent interest. But if you ran up
credit card debt because you’re spending more than you make, refinancing may be
they’re refinancing to pay off credit card debt, then why are they
overextended?” says Sylvia Gutierrez, a mortgage professional in Miami and the
author of “Mortgage Matters: Demystifying the Loan Approval Maze.” “Some people
continuously mismanage their money and refinance to catch up.”
some homeowners, a home
equity line of credit may
be a better option. It’s less expensive than refinancing, and the payments vary
based on how much you use.
alternatives to refinancing are making extra payments or doing what’s called
recasting the loan, where you make a large lump-sum payment on the principal
and have the balance recalculated to cut your monthly payment. Lenders that
allow recasting usually charge several hundred dollars, but that’s
significantly cheaper than refinancing. Those who qualify might also consider
refinancing through the Home Affordable Refinance Program, which offers a
streamlined process to lower interest rates for homeowners who have a loan
owned by Freddie Mac or Fannie Mae, with little or no equity.
are seven questions to ask before you refinance again:
much money will you save? Look at
not only your monthly payment, but also calculate how much more interest you’ll
pay by extending the life of the loan, based on how long you expect to be in
much will the loan cost? Add up
lender fees and third-party costs such as transfer taxes and title insurance.
Remember that even if you don’t pay those costs upfront, you are still paying
long do you plan to keep the loan? If
closing costs are high and savings are low, you may not save any money if
you’re not planning to stay in the house more than five years.
there cheaper alternatives? HARP
refinancing, recasting the loan and a home equity line of credit are other
options. Some lenders may also do a cheaper, streamlined refinancing for
existing customers. In some cases, paying extra principal could be a better
still qualify? Mortgage
rules have been tightened considerably in recent years. Be sure you still have
the credit score, income and loan-to-value ratio to qualify under those rules
before you apply.
long do you want your loan to last? If you’re 10 years into a 30-year loan,
refinancing starts your 30 years all over again. On the other hand, refinancing
into a shorter loan with a lower interest rate could be a smart financial move.
By Teresa Mears - To view the original article click here