Originally Posted By Jim in Merced CA I'm new to homeownership. Got a good rate on my initial home loan. It's a 30-year fixed. Now my mortgage company is hitting me up for a refinance check-up. If I want to consider this, what should I look for? How will a lower percentage rate impact my monthly payment? Lower monthly payment? Should I just sit tight? Any information would be appreciated.
Originally Posted By TomSawyer Find out what how much the loan will cost you, compare that to the lower payments, and see how long it would take for the lower payments to pay you back for the cost of the refinance. If you have a good rate on a fixed mortgage, the only reason to refinance is if the cost of the loan is much lower or you want to do a major improvement on your home. Never refinance to get cash to buy consumables. It might be okay to refinance to pay a lot of consumer debt if you have a lot, but every penny you take out of your home equity is money you won't have toward your next house if you need or want to move. Only use home equity for things that will increase value - like a home remodel or room addition. Find out how much less a month your new loan would cost, but also remember that you are re-setting your loan at 30 years so you're back to paying mostly interest again. No wonder the lender wants you to refinance. If your financial situation is a little better, you might find out what a 15 year mortgage would cost. You can save a ton of money in payments over the years even though you are paying more now.
Originally Posted By RoadTrip <<If I want to consider this, what should I look for?>> The interest rate should be at least 1% less than what you are paying now or it really isn't worth it. Look for a refinance where ALL closing costs are covered and there are no loan origination charges. <<How will a lower percentage rate impact my monthly payment? Lower monthly payment?>> Yes, the payment will be lower. You may also be extending the term of your loan and consequently when your home is finally paid for. For instance -- if you have been in your home for 8 years and you refinance the remaining balance with another 30 year mortgage, you are paying a mortgage for 8 years longer than you would have before. Because of this you can end up paying MORE total interest because even though the rate is lower you are paying it for a longer period of time. See if you can get the refinance company to match the term of the loan to the number of years you have remaining on your current loan. They will probably say something like "We only do 30 year or 15 year mortgages." Say you are not interested then and get up to leave. You'll be amazed at how quickly they come up with other options. You may not be able to match the exact term (22 years in my example) but they should be able to come close with either a 20 or 25 year mortgage.>> <<Should I just sit tight?>> Maybe, maybe not. If you can pick up at least one point on the interest rate, get a loan with no closing costs or origination fee, and match the term of the new loan to the years remaining on your existing loan it might not be a paid idea. Be sure when you ask about closing costs that they don't just brush your question aside and say that it is not a problem since you will not have to write a check at closing. That means NOTHING. They could just be increasing the amount you borrow to cover the closing costs. If you borrow to cover closing costs you are decreasing your home equity -- something you do not want to do.
Originally Posted By goodgirl Make sure you are thoroughly advised of all fees and charges up front. Don't finance them as part of your mortgage either. Also, be wary of who owns the paper to your mortgage. There are a lot of mortgage companies that have sprung up in recent years. Your mortgage may be sold to another mortgage company or financial institution. While the terms might not be able to be changed, that new company may not be very nice to deal with.
Originally Posted By Big Thunder Tom Sawyer and Road Trip gave good advice. basically if you have a 30 year fixed at a good rate, don't change it unless there is something lower, which I doubt because I remember when you went from Jim In Pasadena to Jim in Merced, and if I'm not mistaken the rates were lower back then than they are now. Unless you had a loan at sub prime rate and you now qualify for prime, that's about the only reason I could imagine refinancing, unless you need some cash. I think you already know this, but I'll say it anyway... if you have a 30 fixed at a good rate, stay with a fixed at a good rate, Don't switch to a loan that converts to an A.R.M. I am amazed in the last few years at many of my friends who refinanced their homes. They all had bazaar reasoning about negative interest A.R.M.s and interest only payments and all kinds of creative products. As a conservative traditionalist, I didn't understand those products and when people were trying to sell me on them I just said "no" until a lil over a year ago after much research and getting to a know a lender agent whom I trust, I finally refinanced my house after 14 years with the same original loan. I then took a 3 year fixed to adjustable only because my plan was to pull some cash to do some improvements and sell that house then pay off the loan after one year, then buy a different house with a different loan, which is what I did. Don't do like my friends and let fast talking sales people sell them risky products. Two of my friends have refinanced their house every year for the last 4 years, one of them more than that. When the housing market was on a brisk upswing in prices and they were gaining equity fast, it was tempting for them to view it as means of income. Huge mistake in my opinion. They all have prepayment penalties and they all turn into adjustable loans. Who knows what rates will be like in 3 years? Who knows what their house will appraise at in 3 years? One friend just got notice that his rate has now increased, it is a very significant difference in his monthly payment. He is looking at refinancing again to a fixed, but no way is he going to find something at the rate he had short term. So now he will pay fees to get another loan, and on top of that still pay a higher monthly payment. Stay fixed if the rate is good. According to Bloomberg/Bankrate, current 30 year rates are at 5.84%. I agree with Roadtrip, unless you can get something at least 1% better than your current rate, don't do it, and if you do, watch for points and garbage fees. <a href="http://www.bankrate.com/blm/" target="_blank">http://www.bankrate.com/blm/</a>
Originally Posted By Big Thunder ^^ you can use the mortgage calculator on that link to help you decide what's best for you. Just plug in your numbers and rates.
Originally Posted By Jim in Merced CA I knew I'd get some responses, but had no idea that LP.com had so many knowledgeable people. Big Thunder -- great advice. Thank you. My current APR is lower than the one quoted above in post #8, and I am also very conservative when it comes to money. ie: I'd rather know what my payments are going to be than worry about what they might be next year. Thanks all! Great stuff.
Originally Posted By SingleParkPassholder Everyone has given you great advice. Another thing to keep in mind- it pays to be cynical here. They wouldn't be hitting you up unless there was something in it for them, i.e. more fees, etc. They're just not that concerned about YOUR financial well being. The market's on a downturn, and they now need to go out and solicit business, something they haven't had to do before. If they simply want to lower your rate without it costing you more in the long run, go for it. Otherwise, pro-rate it out as others have said and see if it makes sense.
Originally Posted By SingleParkPassholder One more thing. Without knowing more about the entirety of your situation, but if your 30 year fixed is lower than 5.84, then given today's market, I don't see how refinancing helps you.
Originally Posted By SingleParkPassholder "If your financial situation is a little better, you might find out what a 15 year mortgage would cost. You can save a ton of money in payments over the years even though you are paying more now." Absolutely.
Originally Posted By beamerdog Advice here: Get it in writing. You wouldn't believe how many people get a great deal over the phone and then get to closing only to find out that the mortgage company won't make good on their promises :-( Some states require that you be represented by an attorney at settlement. If so, make sure that you get a good one - check with neighbors, friends and family. Don't take recommendations from the mortgage broker. Also, I'd rather go with a company rep rather than a broker since they add on fees. Good luck!
