In this post I will cover common questions about refinancing. Enjoy!
1. When is it worth it for me to refinance?
Determining when it is worth it to refinance can depend on a number of factors. The two most important are what your closing cost are and what your payment savings are. I have always said to clients that ideally you want to have a break even point of 12 months or less. If you take your cost to refinance and divide it by your monthly savings, you want the breakeven period to be 12 months or less.
Remember, the more you owe, the lower the change in rate necessary to make it advantageous to refinance. The less you owe, the higher the change in rates will be necessary to make it worthwhile. For loans over $200,000 a change as low as .25% is typically worthwhile
2. Why do I have closing cost on a refinance?
Unfortunately, some, not all of the documentation has to be done over again. This results in cost as part of the transaction. Some items can be used over depending on when you purchased your home and the type of transaction you did. We will review your individual file to save you as money as possible.
In addition, many clients are opting for our No closing cost mortgage. This option has a slightly higher interest rate. However, there are no closing cost. This allows you to save money without spending money. In addition, should rates drop even lower, you can refinance a second time with no closing cost again!
3. Can I lock in my interest rate?
On a refinance transaction, before you can lock in your interest rate, we require that your loan application be submitted before locking you in. In addition, we may collect from you an application deposit to lock in your interest rate. When your loan closes, the application deposit is refunded to you. Should your loan be declined, it is refunded to you less any appraisal cost. Should your loan be approved and you elect not to close, the application deposit is not refundable.
To help expedite this process the following is a check list of documentation that we will need to insure a fast approval process:
> Updated mortgage application (easiest if done at my website www.danmoralez.com)
> Copies of your last two paystubs
> Copies of your most recent bank and/or investment account statement(s) (all pages)
> Copies of your most recent retirement account statement(s) (all pages)
> Your signed application disclosures returned
> Copy of your current homeowners insurance policy or your agents name and phone number
When rates are dropping, the faster we can get your paperwork the quicker we can get your closing completed.
4. What if I lock and interest rates go lower than what I locked at?
An interest rate lock is just that, a lock. By locking in, you are guaranteed the rate you lock in at, whether or not market rates go up or down, you get what you locked in at. This is one more reason why I suggest our no closing cost mortgage. You can lock in and close with no closing cost. Should the market continue to move in your favor, you would close on your mortgage application and then would have the ability to refinance a second time at no closing cost.
Keep in mind, when you lock we do collect an application deposit. Should you not close your transaction at the terms you have locked into, you could forfeit your application deposit. In cases of extreme market movements (rates moving by more than .25%) the bank may allow you to renegotiate the terms of your lock on a case by case basis.
5. Do you offer a no closing cost refinance option?
Absolutely, this has become one of our most popular refinance options. The no closing cost option allows you to refinace with $0 fee's. The best part is you can lock in a lower rate now and close. If rates go even further, you can do it again with $0 cost. So what's the catch? Depending on your loan size, your rate may be slightly higher than the average market rate. However, if you are saving money even at the slightly higher rate, it makes complete sense to refinance for no closing cost.
6. Will paying closing cost get me a better rate?
Yes, paying closing cost will get you a better rate. However, it may not make sense to pay $1200 to $1500 in closing cost if the difference in rate is small. This is because it may take you longer to make back your cost. In addition, if rates were to drop further you could be out the investment of closing cost. Are recommendation in todays market is to look at both options and make sure you pick the option that is best for you. We will help you do the math to make sure you understand both options and have selected what is the best deal for you.
7. Rate's are going lower I am going to wait
While it is your option to wait. You need to be aware of the risk in waiting. Here are some thoughts about waiting for rates to go even lower:
1. Mortgage money comes from Wall Street and the bond market in particular. The dynamics of how mortgages are priced are extremely complex. While we may think rates will continue to drop, the truth is any number of events can cause rates to go against us. Keep in mind we live in a global economy and now more than ever we are seeing foreign markets effect what is happening in the US. In addition, investments in US housing loans have been hurt by the recent subprime mortgage crisis. While you can wait for rates to drop lower, remember, you are playing with fire and can get burnt. This adds more strength to the no closing cost option as you can close with $0 cost and secure a lower rate today and do it again at no cost if rates drop further.
2. Mortgage guidelines are changing. Your ability to refinance can be effected by the change in mortgage guidelines. This is especially true if you financed 95 to 100% of what your home was worth when you purchased it. In addition, if you had a loan that had PMI. Several of the PMI companies are increasing rates which would reduce substantially your savings on your mortgage.
3. Property values can effect your ability to refinance. If you purchased a home and had 15 to 20 down and were able to avoid PMI, you need to be concerned about whether or not your property has decreased in value. A decrease in value can lead to PMI where you may not have had it previously.
If you financed 95 to 100 percent of what the house was worth when you purchased it, you may be unable to refinance all together if your property value has decreased. In addition, your cost of PMI may be higher as well due to the new rates being charged by most PMI companies.
Again, you could have missed your window of opportunity. The Fed decreases rates to help stimulate the economy. A bad economy only adds fire to lower home prices. Lower home prices = a lower appraisal on your home. This could create an issue for you if you look to refinance your home.
Bottom line, there is a fine line between good and greedy. You can get a good deal with no cost or you can get greedy and play with fire (not recommended :)
8. How do I get started?
The fastest way to start is by submitting an updated mortgage application on our website (www.danmoralez.com). As soon as we receive your application we will confirm it. We will also need your supporting documentation. See question number 3 for what we will need from you. Please forward that information as soon as possible to us. This will help to insure a quick closing and the best rates possible for you.
Stay tuned to the blog as more information will be added. Remember, you can also subscribe to the blog via RSS. This way you can get my latest post in your favorite RSS reader.
Thanks again for making The Dan Moralez Mortgage Team your choice for home financing.
