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     Here are the most common questions I get asked when people are thinking about refinancing. The caveat with any of these is “It depends on your particular circumstances.” If in doubt, call me! We’ll talk about your specific needs.

Will I be in this house long enough to repay the costs of refinancing?
At a 1% reduction in rate, it takes about 2 years to break even. So you need to be there longer than 2 years to make sense of it.

How much do I need to reduce my rate to justify the costs?
A minimum of 1% on a 30 year loan and at least 2% on a 15 year.

Should I refinance my adjustable rate mortgage even though my rate is low? Probably. Future rates will likely increase. Locking them in now is a good idea.

What about a "no-cost" loan?
A “no-cost” refinance is simply hiding the costs in the interest rate. The reverse is paying discount points to get the “lowest rate in town.”

If my adjustable can be converted, should I convert or refinance? Which is the better deal?
In most cases the conversion rate is about the same as a “no-cost” refinance. So the longer you will be in the house, the more you should lean towards a full refinance.

What is the actual rate on my loan? Is it my APR? Where do I look to find out my actual rate?
The APR is the rate disclosed at closing that includes closing costs and prepaid interest. The actual rate on your loan is stated clearly on your ”Note.”

When should I lock in my loan? What is the best rate I can expect? When will the rates hit bottom?
The best time to lock is when you decide. But honestly, if I knew these answers, I'd be rich and retired in the Bahamas. Pick a reasonable target that works for you and LOCK. Unless you like to gamble.

What will I lose if I miss the bottom and don't lock in and miss re-financing?
The market is the market. If you are reducing either your note rate or your "net effective rate" by 1% or more, refinancing is worth considering.

What is "net effective rate"? How do I calculate it? Does it matter?
Simply, that is the rate you are paying on borrowed money such as mortgage, second mortgage, auto loan, credit cards, credit lines, etc. If you can consolidate them all into a new mortgage with deductible interest you can save on both interest and monthly payments. Maybe even taxes! Calculate it by finding the average interest rate you are paying on all loans. (That can be a rude awakening!) Then compare that rate with what is available on a new mortgage.

How low is low enough?
It depends on your individual circumstances. See the previous paragraph on net effective rate.

Should I take equity out of my house to use for remodeling, paying off credit cards, second mortgages, or for investment or other personal needs?
First, it depends on your current interest rate. Second, it depends on the net effective rate you would pay on a new mortgage or second mortgage. When it comes to using your equity for investment, only time will tell. How well you do on any investment depends on the investment made. Luck is a key factor. One thing is definite: the equity in your home is a non-earning asset. That means it is just sitting there doing nothing for you. On the other hand, you will want your house paid off when you are ready for retirement. A quick way to get there is to invest your equity to actually pay it off faster. This method is usually preferable to making extra payments. You will want to ask a good financial advisor for more information about this subject. This is the method used by the people pushing the "Debt Free" seminars.

Do I have enough equity in my house to eliminate mortgage insurance or change my FHA loan to a conventional? Will that save me money?
If you have been in your house for 5 years or longer, bought it under market value in the first place or remodeled or finished the basement, chances are good you will be able to eliminate mortgage insurance and maybe even get a refund from FHA.

How much will it cost to find out?
The only way you will know for sure is to get an appraisal done ($300) and a credit report run ($18).

What does it cost to refinance?
Generally, about the same as the loan you got in the first place. As a rule of thumb, the costs are about 2%-2.5% of your loan. The variable is the amount of your loan. The fixed costs are obviously a larger percentage of a small loan.

If you have other questions or just aren't sure, give me a call. I would love to hear from you and help you with these considerations.
Thank you again for visiting,


1-800-578-1555   •   801-631-9933   •   575 East 4500 South, B-170   •   Salt Lake City, Utah 84107   •   dave@udy.net