LETTERS From CAMP Rehoboth |
Refinance? Yes or No: Now May Be The Time |
by Cheryl Normandeau |
Todays interest rates are still at an all time low around the country. Whether your mortgage is on your primary or second home, you could possibly benefit by refinancing your existing mortgage. In some cases, you may only be looking for a better rate and term. In other cases, you may want to consider taking some equity, in the form of cash, out of your property. In either case, you need to look at the assortment of types and terms of mortgages offered by lenders. When you refinance a mortgage, your lender will pay off your existing mortgage and any second mortgage, such as a home equity loan. You will have a choice to refinance just the balance(s), include the closing costs, or in some cases, take out some additional cash. Your decisions will also include type of mortgage, length of mortgage, points or not, and in some cases, choice of attorney, and/or settlement office. You will have to go through the normal closing and settlement costs just as you did when you first purchased your home. Three reasons to consider refinancing:
Say your existing mortgage rate is at 8.2 percent. You know the current rates are much lower than this and would like to take advantage of some savings. For a $100,000 mortgage, your monthly payment of principle and interest is $768.91. Assuming you have $98,000 to pay on your existing mortgage, and you would like to refinance this amount at a current rate of 7.2 percent, your new payment would come to $685.23Ca monthly savings of $83.68. But you would really like an even better rate. That can be accomplished by purchasing "points." One point is equal to 1% of the mortgage amount. In this case, 1 point would equal $980 and would be paid at the settlement table. In most cases, you can have your lender add the points to the mortgage amount. Now assume that 1 point would buy the interest rate down to 7 percent. You would then mortgage $98,980 at 7 percent interest for a payment of $658.51Ca monthly savings of $110.39. These are just a couple of ways to increase your monthly savings by changing the mortgage rate. Your mortgage professional can work with you to determine the best-fit scenario of rates and/or points. The second reason for a refinance concerns a shorter time frame of pay off. In most cases, when you mortgage for a shorter period of time, the interest rate is also a lesser amount. Say you are currently in the 3rd year of a 30-year mortgage, and youve been making extra payments toward your principle since you received a big raise at work. Your original rate was pretty high. Work with your mortgage professional to determine the best amount of years to amortize your mortgage at a new, lower rate. You may already be ahead of the game by pre-paying some of the principle. Refinancing your existing mortgage for the sole reason of reducing the term or length is not for everyone. The third reason is to take cash out of the equity in your home. This assumes youre in a market where appraised values have increased, not decreased. Generally, refinances for a cash out basis will only allow a 75% "Loan to Value" of the new appraised value. Some lenders offer more than 75%, but with a much higher rate of interest. Lets say you would like to pay off an existing car loan, but you are somewhat short of cash. Your home originally cost $125,000, but you are pretty sure that it is currently valued at $200,000. Your existing mortgage is only $75,000. This means that you have a total of $125,000 equity in your home! Under standard guidelines, you will be able to mortgage up to 75% of the $200,000 or up to $150,000. You stand to walk away from settlement with approximately $25,000 in your pocket. If you are interested in refinancing your existing mortgage, it is best to see a mortgage professional for guidance as to all the possibilities available. Your opportunity to benefit from a refinance is only a conversation away! In all cases of the process of mortgaging and refinancing, lenders have to abide by guidelines and rules within their organizations. The above examples represent approximate numbers and may vary. Settlement and closing costs vary from geographical area, type of mortgage and lender. Cheryl Normandeau, a Loan Officer with Norwest Mortgage in Rehoboth Beach, may be reached at 302-226-1865 or 888- 227-5700. She is available to meet with you during the week and on the weekends. |
LETTERS From CAMP Rehoboth, Vol. 8, No. 11, August 14, 1998. |