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    • Guide To Refinancing Your Mortgage

      Date: 2010.05.09 | Category: Mortgage | Response: 0

      Refinancing your mortgage can mean great savings for you and your family. Replacing your existing mortgage with a lower interest loan, changing the term of your loan, or even consolidating all your debts into this new loan could save you money, both monthly and over the life of the loan.

      The rule of thumb is when interest rates are 1.5 to 2% lower than you are currently paying on your mortgage, it’s time to consider refinancing.

      Would Refinancing Be Worth It?

      Refinancing can be worthwhile, but it does not make financial sense for everyone. There are a number of items to consider, such as how long you plan to stay in the house. Most sources say that it takes at least 3 years to fully realize the savings from a lower interest rate, given the costs of the refinancing.

      Refinancing can be a good idea for homeowners who:

      * Have an adjustable-rate mortgage (ARM) and want a fixed-rate loan to have the certainty of knowing exactly what the mortgage payment will be for the life of the loan.
      * Want to build up equity more quickly by converting to a loan with a shorter term.
      * Want to draw on the equity built up in their house to get cash for a major purchase or for their children’s education.

      What Are the Costs of Refinancing?

      Costs can vary significantly from area to area and from lender to lender, so the following are estimates only. Your actual closing costs may be higher or lower than the ranges indicated below.

      Application Fee 75 – 300. This charge imposed by your lender covers the initial costs of processing your loan request and checking your credit report.

      Appraisal Fee 150 – 400. This fee pays for an appraisal, which is a defensible estimate of the value of the property.

      Survey Costs 125 – 300.

      Homeowner’s Hazard Insurance 300 – 600.

      Lender’s Attorney’s Review Fees 75 – 200. The lender will usually charge you for fees paid to the lawyer or company that conducts the closing for the lender.

      Title Search and Title Insurance 450 – 600. This charge will cover the cost of examining the public record to confirm ownership of the real estate, and the cost of an insurance policy.

      Home Inspection Fees 175 – 350.

      Loan Origination Fees 1% of loan. The origination fee is charged for the lender’s work in evaluating and preparing your mortgage loan.

      Mortgage Insurance 0.5% – 1.0%. Depending on the type of loan you have and other factors, another major expense you might face is the fee for private mortgage insurance.

      Points 1% – 3%. Points are prepaid finance charges imposed by the lender at closing to increase the lender’s yield beyond the stated interest rate on the mortgage note. One point equals 1% of the loan amount.

      Prepayment Penalty. A prepayment penalty on your present mortgage could be the greatest deterrent to refinancing. The mortgage documents for your existing loan will state if there is such a penalty. In some loans, you may be charged interest for the full month in which you prepay your loan. In the future, always make sure there is NO prepayment penalty.

      In Conclusion

      A homeowner should plan on paying an average of 3 – 6 % of the outstanding principal in refinancing costs, plus any prepayment penalties and the costs of paying off any second mortgages that may exist.

      Whether or not that is a wise decision is purely a numbers matter.

    • Fixed Rate Mortgage vs. Adjustable Rate Mortgage

      Date: 2010.01.24 | Category: Mortgage | Response: 0

      The most basic distinction between types of mortgages that are available when you’re looking to finance the purchase of a new home is how the interest rate is determined. Essentially, there are two types of mortgages – fixed rate mortgage and an adjustable rate mortgage. If you choose a fixed rate mortgage, the rate of interest that you are paying on your mortgage remains the same throughout the life of the loan no matter what general interest rates are doing. In an adjustable rate mortgage, the interest rate is periodically adjusted according to an index that rises and falls with the economic times. There are advantages and disadvantages to either, and no easy answer to ‘which is better, a fixed rate mortgage or an adjustable rate mortgage?The main advantage to a fixed rate mortgage is stability. Since the interest rate remains the same over the entire course of the loan, your monthly payment is predictable. You can count on your monthly mortgage payment to be the same amount each month. On the minus side, because the lending institution gives up the chance to raise interest rates if the general interest rates rise, the interest on a fixed rate mortgage is likely to be higher than that of an adjustable rate mortgage.A fixed rate mortgage loan makes the most sense for those that are going to settle into their home for many years. While the initial payments may be larger than with an adjustable rate mortgage, stretching the payments over a longer period of time can minimize the effect on your budget.An adjustable rate is one that is adjusted periodically to take into account the rise or fall of standard interest rates. Generally, the adjustable term is annual – in other words, once a year the lending company has the right to adjust the interest rate on your mortgage in accordance with a chosen index. While adjustable rate mortgages make the most sense in a situation where interest rates are dropping, though it’s dangerous to count on a continued drop in interest rates.Lenders often offer adjustable rate mortgages with a very low first year ‘teaser’ interest rate. After the first year, though, the interest rate on your mortgage can increase by leaps and bounds. Even so, there are limits to how much an adjustable rate can actually adjust. This is dependent on the index chosen and the terms of the loan to which you agree. You may accept a loan with a 2.3% one year adjustable rate, for instance, that becomes a 4.1% adjustable rate mortgage on the first adjustment period.Finally, there’s a new kind of loan in town. A hybrid between adjustable rate mortgages and fixed rate mortgages, they’re known as ‘delayed adjustable’ mortgages. Essentially, you lock in a fixed rate of interest for a number of years – say 3 or 7 or 10. At the end of that period, the loan becomes a 1 year adjustable rate mortgage according to terms set out in the agreement you sign with the mortgage or financial institution.