The Rules of Refinancing

The Rules of Refinancing

In today’s era of 24/7 exposure, media outlets are continually feeding us conflicting messages. With the constant stream of contradictory information, it can be difficult to sort out truth from error. This is particularly true when it comes to the relentless pounding of mortgage companies telling you that now is the time to reduce your interest rate. Although they may be correct in some cases, Refinancing is not always right for all homeowners. This is especially true if doing so would add thousands of dollars to your mortgage balance.

One of the values of having a mortgage planner watching over your home loan is the comfort of knowing that a professional will let you know when the time is right to consider a refinance. In addition, a good mortgage planner will make recommendations that will help ensure that you are able to take advantage of interest rate reductions with minimal or no closing costs. I strongly believe that mortgage balances should be reducing each month, not increasing each time interest rates drop.

When I suggest no-fee loans to my clients, I’m often asked how it is possible to Refinance a loan without the homeowner paying the closing costs. A short explanation as to how a no-fee loan is achieved is as follows:

A No-Fee Loan Explained:

There are always fees associated with doing a mortgage. Appraisers, title companies and underwriters all require payment for their services. On a typical $225,000 mortgage, the total for these is approximately $2,462. Then, there is either a fee or a credit associated with each interest rate. For example, a 3.5% interest rate may have a fee of 1%. Therefore, with a $225,000 loan, you will pay the following:

Basic Closing Costs: $2,462

Fees for Interest Rate of 3.5%: $2,250
TOTAL CLOSING COSTS: $4,712

Alternatively, there are also interest rates that offer a credit. The credit is then used to cover the basic closing costs incurred. If the credit is equal to or greater than the basic closing costs, then all of the fees are covered. For example, an interest rate of 3.875% may offer a credit of 1.125% of the loan amount. This is demonstrated as follows:

Basic Closing Costs: $2,462

Credit for Interest Rate of 3.875%: ($2,531.25)
TOTAL CLOSING COSTS: ($69.25)

Who Should Consider a No-Fee Refinance?

If you have an interest rate that is higher than 4% on a 30 year loan, or 3.5% on a 15 year mortgage, it is time to consider a refinance.

If you are eligible for a no-fee loan, then you should definitely refinance. If there is a reduction in the interest rate and no fees added to the balance, it is an easy decision. To see if you are eligible for a no-fee loan, call my office for a freemortgage review. The process takes about 10 minutes and we can answer any questions or concerns you might have. If it makes sense to refinance, we will outline our recommendations for you. By having an experienced mortgageplanner on your side, you can make sure you don’t miss out on the incredible opportunity right now of record-lowmortgage rates.