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.
much do I need to reduce my rate to justify the costs?
minimum of 1% on a 30 year loan and at least 2% on a 15
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.
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.”
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.
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.”
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.
will I lose if I miss the bottom and don't lock in and miss
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.
low is low enough?
It depends on your individual circumstances. See the
previous paragraph on net effective rate.
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.
I have enough equity in my house to eliminate mortgage insurance
or change my FHA loan to a conventional? Will that save
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
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).
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
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
Thank you again for visiting,