What does it mean to refinance? Refinancing a loan can be done for one of two reasons. First reason can be to lower your current interest rate and take advantage of lower monthly payments for the life of the loan. Second reason would be to consolidate outstanding debts and take advantage of one low interest payment as opposed to paying higher interest rates on credit cards, student loans, etc…
Is this time to refinance? At the current moment it is absolutely the best time to explore your options on refinancing your current home mortgage due to the low interest rates. Consider the simple fact that it has never been cheaper to borrow money.
How do I know if it’s worth refinancing my loan? First things first. You must know what type of refi loan you are seeking. If you want to refinance to lower rate that would be called a Re-Fi “rate & term” loan. Rates are usually lower than the other type of Re-Fi loan called a “cash-out”. If you are interested in either loan scenario such as lowering your rate to take advantage of the never before seen interest rates or take cash-out to pay-off current than I would suggest you speak with a mortgage consultant like myself in where I would do the homework to let you know if it is worth refinancing or not.
What are the cost associated with the refinancing of a loan? This is an extremely important question that plays a big role in whether or not it is worth refinancing your current loan. Let’s begin by breaking down the different cost associated with a loan in general that also apply to a refinance loan.
First, are the fees paid for working the loan. Usually this consist of an underwriting fee, processing fee and possible buy-down cost of obtaining a lower than par rate. Other fees associated with this are appraisal fee, credit report fee and condominium doc fee (if subject property is a condominium).
Second, are title fees. These fees can include everything from lender and borrowers title insurance fee, lien and title search fee, settlement fee, survey fee (depending on property type) and endorsement fees (if applicable), wire transfer fee, and courier fee (FedEx).
Third, are state and local government which are: Documentary Stamps on Deed fees as well as recording fees.
Fourth, are not fees associated with a loan but are still very important part of the loan as they make up what are the escrow accounts. Usually a 3-month cushion of property insurance is required along with a 3-month cushion of property taxes plus however many months from the date of the last tax bill has passed. For example, if the loan closes in the month of January the lender will collect a total of 6 months. You would count November, December, and January + 3-month cushion = 6 months of property taxes.