Lower Interest Loans

Refinance Loans
(Purposes) (Important Considerations)

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You may want to refinance your homeowner's loan (mortgage) for any one of the following reasons:

Get lower interest rates

· Interest rates are at an all time low. If you have a mortgage with a high interest rate, this may be the time to reduce those interest rates.

Lower the total cost of your loan by lowering the length of the term

· Switching from a 30 year loan (for example) to a 15 year loan means that you will see a slight increase in monthly payments, but with a shortened term, you will save thousands in interest payments.

Home improvements

· Perhaps you'd like to make some improvements to your home and at the same time add more value to it. You can obtain a cash-out refinancing loan and use the funds for your home improvement projects.

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Consolidate debt

· If you have a number of higher interest debts that you want to pay off, a refinance mortgage can combine these debts with your mortgage. You then have only one monthly payment.

Private mortgage insurance

· If you have at least 20% equity in your home, you can obtain a refinance loan and stop paying for private mortgage insurance and reduce your monthly payments.

Switch from an adjustable rate mortgage (ARM)

· With an adjustable rate mortgage the interest rates fluctuate. This means that when interest rates climb so do your monthly payments. When interest rates are low, it's a good time to obtain a refinance loan and secure a fixed rate mortgage. With a fixed rate mortgage your monthly payments are the same for the entire term of the loan.

It's very important for you to consider the following variables when looking at refinancing:

Timing:

Traditionally, the best time to refinance a mortgage was when your current mortgage rate was 2% lower than the rate your current rate. However, it may be worth your while to consider refinancing even if the interest rate difference is less than 2%. Even a small reduction in the loan rate can lower your monthly payment. For example, the monthly payment (excluding taxes insurance) on a $100,000 loan at 8.5% is about $770. By lowering the interest rate to 7.5%, the monthly payment would be about $700. That's a savings of $70 per month.

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Locked Interest Rates:

From the time you apply for a mortgage to the day you close the deal, it's possible for interest rates to change. If the rates rise during the application process, you could end up paying higher monthly payments than you expected because of the increase in interest rates. Many lenders offer borrowers protection against this uncertainty by "locking in" the loan's interest rate and guaranteeing that the loan's interest rate remains the same for a specified period of time, usually 30 to 60 days. There may or may not be a fee for this consideration.

Discount Points:

Whether to pay discount points to lower your loan's interest rates depends on how long you plan to stay in your home. It may be worth considering if you are planning to stay for a few years. However, if you plan to only remain on the property for a year or two, the monthly savings may not be enough to make up for the cost of the discount points you paid up front. When you are negotiating your loan, ask your lender to figure out what the savings would be, if any.

Less Than Perfect Credit:

If you have had credit difficulties in the past it still may be possible to get a refinance loan. You will be considered a higher risk borrower though, and to compensate for this added risk, the lender will charge a higher interest rate. The fact is, the poorer your credit record is, and the higher the interest rate you'll be charged. Not every lender will approve borrowers with a risky credit record either, so you may have to shop around.

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Compare:

Lenders differ in how they structure financing in several ways. One lender may offer a lower interest rate and charge higher fees, while another may have higher fees and slightly lower interest rates. You want to try and compare them on the same level. One way of doing this is to ask each lender what their interest rate is for a zero discount point loan based on a 30 or 60 day lock in period. Be sure to ask each lender what their origination fee is. Ask if other fees are involved. Some lenders charge fees for brokerage, processing and underwriting. Any reputable lender will happily answer your questions. Be wary of those who don't.