Considering Refinancing? Ask Yourself A Few Important Questions First
With interest rates dipping below 5 percent again on 30-year mortgages, you may be wondering if you should refinance your home. Ilyce Glink and Samuel Tamkin of real estate Web site ThinkGlink.com suggest asking yourself some critical questions before you take the plunge:
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Will you lower your interest rate? You want to lower the rate enough that it makes doing the refinance worthwhile.
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Will you lower your monthly payment? You’ll need to know what a new interest rate and term will cost you each month, and how much savings will go back in your pocket each month.
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Will you shorten your loan term? Say Glick and Tamkin: “This is an important question because if you have 25 years left on your loan and are starting up with another 30-year loan, you've essentially lost five years of payments. But if you have 25 years left and can refinance to a 15-year mortgage, you'll come out ahead.”
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And finally, what fees will you incur from your lender to do the refinance? If it takes years of monthly savings to make up for the fees you pay upfront, the refinance may not be worthwhile for you.
Glink and Tamkin say that the biggest of these four issues is how much time remains on your loan: “If your monthly payment is less with a 15-year loan, and you can use that savings to prepay the loan, then you know you're making a smart move,” they say. “But it isn't really fair to compare monthly payments when a new loan is going to add years of payments. You must also compare what the costs are to close the loan.”
Glick and Tamkin suggest the best way to lower the costs on a refinance is “to shop around. Talk to at least four or five types of lenders: a credit union (if you belong to one or can join one); a big-box lender (such as Sun Trust, Wells Fargo or Bank of America); a local mortgage broker; an Internet lender (such as ING Direct) or a mortgage aggregator; and a small, local bank that might keep loans in its own investment portfolio.”
Also, they suggest, be sure to get a free copy of your credit history at http://www.annualcreditreport.com. They further suggest that you may want to purchase a copy of your credit score as well.
For more information, visit www.thinkglink.com.