Refinancing

When is the right time?

    There are many factors to consider when refinancing. In the past, the decision to refinance was solely based on balancing a lower monthly payment against the cost of refinancing. Today, with many " No Cost" and " Low Cost" refinancing packages, the out-of-pocket cost to refinancing can be significantly reduced. At one time, the rule of thumb is that the interest rate on your new mortgage must be about 2 percentage points below the rate on your current mortgage to make sense. Now, with the introduction of newer " No Cost" and "Low Cost" refinancing programs, it can be worth your while to refinance even with a smaller reduction in rate.

Avoiding Private Mortgage Insurance:

     One of the most important things to be aware of when refinancing is your current equity position. Today, most all Fannie Mae and Freddie Mac programs over 80% loan-to-value (LTV) will charge you Private Mortgage Insurance (PMI). These percentages will vary depending upon your (LTV). The higher your LTV, the greater PMI coverage the lender will charge. The best way to avoid PMI during refinancing is to first consult with your Licensed Mortgage Consultant and determine what options are available. One thing to keep in mind… as long as your 1st mortgage is at 80% LTV, you will always avoid Private Mortgage Insurance. The most popular way to avoid PMI with a high LTV is to refinance your 1st mortgage at 80% and finance the amount over with a Home Equity Loan or Home Equity Line of Credit. This is a great strategy which can save someone, depending upon amount financed, thousands of dollars over the course of 3-5 years. There are other ways even with a high LTV over 80% to avoid PMI; however, it almost always corresponds with a higher interest rate.

A Tip to Consider:

   Another important tip to consider when refinancing is your plan for the future. If you're only planning to live at your residence for only a few more years, you may want to think twice before refinancing. One should consider the cost at this point and truly study the overall benefit. Many homeowners today use equity in a variety of different ways, i.e. to pay off high interest rate credit cards or to get cash out for your children's education. You may also use your equity for home improvements, which in turn adds value right back into your home. There are those who use their equity for investment purposes; however, please consult a financial adviser before choosing this option.

Fixed-vs-Adjustable:

   Deciding between a fixed or an adjustable rate mortgage can be a difficult decision. There are many variables to consider, so we highly recommend you speak with one of our Licensed Mortgage Consultants before making that decision. Choosing the right program will help you save thousands of dollars in the long run. Fixed rate mortgages are the most common for customers seeking security, stability and just keeping their home mortgage simple. For those customers with fixed incomes such as retirement, social security and disability, the fix rate option may be your best choice. On the other hand, the adjustable rate mortgage also has its advantages. Most all adjustable rate loans come with a reduced rate. These rates typically range from 1%-2% percent lower than most fixed rates. The reason for this program's popularity is that most adjustable rates come with a fixed period ranging from one to ten years. During this period the rate will remain fixed, however, once this period is completed, the rate will adjust depending upon market conditions and margins. This is the time that most people refinance because of the uncertainty of a higher rate and payment. Another advantage to an adjustable rate mortgage is for those clients who are looking to sell their home in a few years. Why not take advantage of a lower rate for 3-5 years knowing you'll be selling soon? There are those people who prefer adjustable rates primarily for the lower payment for reasons such as fluctuating income due to self-employment or perhaps balancing an already high debt situation. A lower payment during times of uncertainty may make all the difference in one's financial position.

 

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