- When obtaining a new home loan, check to see if you will be charged a penalty for paying off your original home loan early.
- The total expense for refinancing on a home loan depends on settlement costs, interest rate, points, and other costs required to obtain a loan.
- Determine the available rates and the costs associated with refinancing a home loan (appraisals, attorney's fees, points, etc.). Then decide what your new payment would be if you refinanced.
- Estimate how long it would take to recover the costs of refinancing your home loan by dividing your closing costs by the difference between your new and old payments (your monthly savings).
- Shopping for points as well as interest rates may save you money on your home loan. As a rule, each point adds about one-eighth to one-quarter of one percent to the interest rate the lender is offering.
- To decide what combination of rate and points is best for you, balance the amount you can pay up front for your home loan with the amount you can pay monthly.
- The less time that you keep the home loan, the more expensive points become. If staying in a home for a long time, it may be worthwhile to pay additional points on the home loan to maintain a lower interest rate.
- Some lenders offer to finance the points so that you do not have to pay them up front. Points are added to the balance of your home loan, and you pay a finance charge on them, meaning increased monthly payments.
- Settlement costs typically include fees for the home loan application, title search, appraisal, loan origination, credit check, and lawyer's services. You also may be required to pay recordation fees or transfer taxes.
- With a lower interest, you will have less to deduct on your income tax return. That may increase your tax payments and decrease the total savings you might obtain from a new, lower-interest mortgage.
- You might consider a 15-year, fixed-rate mortgage. Payments are higher, but you pay a lot less interest over all and build equity faster.
- You do not have to refinance your mortgage with the same lender that provided your original home loan. However, to keep your business, some lenders may offer customers incentives of lower interest rates.
- If you decide on a particular lender for your home loan, and do not want to let the interest rate "float" until closing, get a written statement guaranteeing the interest rate and points that you will pay at closing.
- The lender must give you a written statement of the costs and terms of the financing before you become legally obligated for the home loan, as required by the Truth in Lending Act.
- The amount you may save depends on many factors, including your total refinancing costs, whether you sell your home in the near future, and the effects of refinancing on your taxes.
- Don’t refinance unless saving 2% on interest. Zero points and low-cost refinancing.
- When you apply for a home loan , some lenders require you to pay a special non-refundable charge ($100-$200) to cover the costs of processing your home loan application.
By R. S. Wagner