Refinancing???
Current mood: 
determined
refinancing that makes sense
When thinking about refinancing your home a few things must be addressed. The number one compensating factor is net benefit. What is best for you and your financial future? Refinancing is not free. There are many fees that are involved including what the loan officer charges. So how do you weigh net benefit?
Always start with your current and existing loan scenario. From there evaluate your situation against timeframe. How long do you plan to be in the home? How long do you plan to own the home?
This will help you determine what type of loan products to consider (ARM or FIX). If you goals and outlook for the property are short-term like a possible sell within the next five years - then a 30 yr fix probably won't make much sense for you. The longer the fixed term in your loan the more probable it will be that you'll have a higher interest rate and subsequently a higher monthly mortgage payment.
Always keep in mind as to what you're setting out to accomplish. If you've had credit issues and lower fico scores as a result - acknowledge that you may not have all the options the market has to offer and it make take you more than one refinance to straighten out your current situation. If going into an ARM (adjustable rate mortgage) is your best option for payment and these standard loan programs come with 2 or 3 year prepayment penalties - have your loan officer calculate for the money what it would possibly take to buyout or soften the prepay.
A few things I always tell my clients:
- Don't be afraid to interview the Mortgage Professional who will be doing the same to you during the application process. References, Experience, Personal & Attentive Service go hand in hand with a strong relationship that will benefit you most prized asset, your mortgage. Make sure the Mortgage Professional is a great listener & shares a genuine interest in helping obtain what you would like to accomplish in the mortgage process. Also of note, it should be addressed that the rate,rate,rate phenomenon isn't the only thing to consider. Is the Mortgage Professional you are dealing with offering up scenarios to pay off your mortgage faster, perhaps a 25 or 20 or 15 or 10 year mortgage, depending upon affordablity? There are a lot of variables involved in any mortgage transaction, make sure the person you are dealing with has the knowledge to power you through the transaction to accomplish your goals.
- Don't refinance unless you can recoup the cost of savings within 18 months. If the refinance costs you $4K - $6K and you're saving only a $100/month - understand that it will take you a minimum of 40 months to recoup your costs at $4K. Unless you were paying off debt to increase your credit scores and freeing up money by eliminating out going bills - you would need to seriously consider what you'd be accomplishing by proceeding with this loan.
- Ask questions and be mindful of unecessary prepayment penalties. If the prospective loan scenario that a loan officer pitches you is adjusting monthly - don't accept a prepayment penalty longer than 1 year. If the market turns and rates go up - A prepayment penalty longer than 1 year at this point could further hurt you by having to come out of pocket with additional money to get yourself back to stable ground if your payments are going to be unstable and potentially much higher than you can comfortably afford.
- Make sure doing a loan is in your best interest and not your lenders. Make sure whoever you are working with is working FOR you!
Hey Danny,
A reverse mortgage has actually become a viable option for many. As always, let me know if you have any questions...
That would be based on many factors I would suspect. Investment opportunities elsewhere, present financial situation, expected future financial situation, etc.
If you know where the '18 month' rule of thumb was derived, lemmie know. I'm a bit curious.