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The 5 most commonly-asked questions
When does it make sense to refinance?
Refinancing makes sense if:
- Rates are significantly lower than when you first purchased
your home
- You wish to use the equity that's built up in your home
- You want to shorten your mortgage payment period
- One type of mortgage works better for you than another
Other things to consider:
Add up ALL the possible costs, including points, fees
for inspections, recording, survey, private mortgage insurance,
title insurance, underwriting and others. Figure your
monthly savings by subtracting the monthly payment of
your refinance loan from the monthly payment of your current
mortgage. Look for hidden costs such as early pay-off
penalties.
Is the lowest rate always the best
deal?
Absolutely not. Many consumers get caught up in the "rate
shopping" deception. The lowest rates do not necessarily
add up to the greatest savings. You need to consider closing
costs, extra fees and the length of time for which the rate
is locked.
Look for companies that guarantee their closing costs upfront
so you can compare the true numbers on deals.
Should I pay off my mortgage with
my savings and/or retirement funds?
When you prepay part of your mortgage, you end up paying less
in interest. In doing so, you may end up losing part of your
tax break. An easy formula to remember is figuring the difference
between your mortgage interest rate and the rate at which
you take your deduction. If the net figure is less than what
you can make investing the cash, you're better off investing
and not prepaying your mortgage.
However, if you can't sleep at night because you have a large
mortgage, and would gain peace of mind by paying it off, then
do so. Often it is simply personal preference that determines
the right answer for each individual.
How can I negotiate the best price for
my new home purchase?
Sellers and the Realtors who represent them are more willing
to accept a lower price on your purchase offer if you minimize
the contingencies within that offer. The most common contingency
is a buyer's mortgage commitment. Most purchase offers allow
the buyer 30 to 45 days to obtain a mortgage commitment. In
the meantime, the seller is left "hanging" until
that commitment is obtained. The savvy buyer is the one who
has a mortgage commitment in hand with the purchase offer.
How do I avoid inflated interest rates
and closing costs at the closing table?
At application, companies will often underestimate the rate
of interest and closing costs, simply to 'get the deal'. Currently,
there are no regulatory mandates to control such practices.
Protect yourself by choosing a mortgage company that guarantees
closing cost estimates in writing and gives written rate lock
commitments for a specified amount of days.
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