Refinancing

 

PitfallsWould you like to lower your monthly mortgage payment, or maybe reduce the total amount of interest that you will pay on your home?

With interest rates at an all-time low, it may seem like a no-brainer to refinance.

But before you jump on the "refi" bandwagon to secure a new loan for your home, experts suggest taking a cautious look at the pros and cons, and how they apply to your particular situation.

 

Understand the Reasons for Refinancing

Homeowners often have different reasons for refinancing. Some simply seek to reduce their rate of interest.  However, that may not always be to their advantage, as the related fees may end up being more that the gains from the rate reduction. In order to make the best decision, it is important to have an understanding of their reasons.  It could be for consolidation of debt, home improvement, or for a major purchase.  It could also be for other personal or financial reasons, perhaps taking a loan for cash to purchase a car.  Some purchases may be used for deductions on interest payments on the tax return.  It is always wise to consult a tax attorney, accountant or financial planner prior to making those decisions.

 

Beware of "APR" Advertisements

Annual Percentage Rate or “APR “is often used by mortgage brokers to get the homeowners attention.  However, in the end, they may cost the borrower more.  The rates are based on a 30 year mortgage and an accelerated plan for payment.  Most lenders will allow the borrower to choose this type of plan if they want.  But it is important to both know the actual rate of interest to compare mortgage loans and to understand the payment plan to avoid being surprised later on.

 

Mortgage Brokers Are Not Created Equally

Ask the mortgage lender for information on term, rates and any other loan products they may have. it is in the best interest of the borrower to be well informed. Small details can save or cost thousands of dollars.

 

Review the Good Faith Statement Prior to Signing

It is important to review the charges on the Good Faith Statement.  Overpayment can be avoided by simply looking for the fees.  The origination fee should not be any higher that 1-1.5%.  The loan processing fee should not be more than $400.

 

Get Closing Costs Up Front

Until the details of the specific mortgage loan are clear, closing costs are estimated.  Because there are different ways to calculate closing cost, it is always best to expect the worst and be happy later.  By law, the closing costs have to be disclosed to the borrower within 3 days of making the loan application.  The lender should make the disclosure in a timely fashion and be as upfront as possible.

 

The Appraisal Might Be Too Low

Before approving a refinance, banks require an appraisal of the home to confirm its value.  But over the past year, a growing number of appraisals have been finding home values to be lower than what homeowners expected.  That’s largely due to foreclosure sales that lower the value of nearby properties.  If the appraiser finds the value of a home to be less than the amount the borrower wants to refinance for or finds that the home doesn’t have enough equity to meet the bank’s requirements, the lender could pull the plug on the refi, says Lattas.

Before approaching a lender for a refi, homeowners should try to get an idea of the value of their home.  Review nearby listings of similar homes to see what prices they’re asking for and speak with a real estate broker who knows how much homes are actually selling for. 

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I want to say a huge thank you.  It feels a million times better knowing where we will be living, that we don't have to move, and I can actually afford to live here.  My life is no longer on hold, and we have been able to make plans for the first time in ages. There is no more black cloud of uncertainty hanging over my head always, waiting for the bank to dictate so much of my life. Thank you, thank you, thank you!
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