Refinancing
report for real estate.
There are many reasons why we
would consider refinancing a loan. You can refinance your mortgage
or personal loan and it can be the most responsible thing to do;
it all depends on your circumstances and does not necessarily mean
that you are in financial difficulty.
For
example, if
you took out a mortgage on a new home when interest rates were high,
it would be to your advantage to look into refinancing when interest
rates fall.
Not only will you save
money over the life of the mortgage, but you can reduce the length
of the term as well as your monthly repayments.
You can also refinance a loan
to have more available cash. This is a situation where you refinance
the loan for a higher amount of money - this means that you will
owe more money than you originally borrowed and that you may lose
the low interest rate you had.
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Refinancing can also be used
to consolidate debts such as credit cards.
This section
will now specifically discuss mortgage refinancing.
As mentioned,
one valid reason for mortgage refinancing is to take advantage
of a lower interest rate than when the mortgage was first
negotiated; or to switch part or all of the loan to an adjustable
rate.
Or perhaps you
want to take advantage of another new loan product that your
bank or lending institution is offering.
If you do decide to refinance,
the process will remind you of what you experienced with the
original mortgage - that`s because refinancing a mortgage
is really taking out a new mortgage.
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You will go through many
of the procedures and costs the second time around.
Refinancing can be
to your advantage but may not be for everyone - a general rule is
that refinancing becomes worthwhile if the current interest rate
on your mortgage is at least 2 percentage points higher than the
prevailing market rate.
This figure is generally
accepted as the safe margin when balancing the costs of refinancing
a mortgage against the savings.
There are also other considerations,
such as how long you plan to stay in the house. Most expert opinion
indicates that it takes at least three years to fully realize the
savings from a lower interest rate, given the costs of refinancing.
Refinancing can be a good idea for homeowners
who :
1. 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.
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2. Want to convert to an ARM
with a lower interest rate or more protective features, such as
a better rate and payment caps, than the ARM they currently have.
3. Want to get out of a high
interest rate loan to take advantage of lower rates. This a good
idea only if they intend to stay in the house long enough to make
the additional fees worthwhile.
4. Want to build up equity more
quickly by converting to a loan with a shorter term.
5. Want to draw on the built
up equity in their house to get cash for a major purchase.
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If you decide that refinancing
is not worth the costs, ask your lender if you can access some of
the new terms you want by agreeing to a variation of your existing
loan instead of refinancing.
Should you refinance your adjustable-rate
mortgage (ARM) ?
When deciding whether to refinance
an ARM you should consider these questions :
Is the next interest rate adjustment
on your existing loan likely to increase your monthly repayments
substantially? Will the new interest rate be two or three percentage
points higher than the prevailing rates being offered for either
fixed-rate loans or other ARMs?
If the current mortgage sets
a cap on your monthly repayments, are those repayments large enough
to pay off your loan by the end of the original term? Will refinancing
to a new ARM or a fixed-rate loan enable you to pay your loan in
full by the end of the term?
What costs are involved with refinancing?
The fees described below are
the charges most likely to be applied in refinancing.
Lender`s Attorney`s
Review Fees $75 - $200
Title Search
and Insurance $450 - $600
Home Inspection
Fees $175 - $350
Loan Origination
Fees 1% of loan
Mortgage Insurance
0.5% - 1.0%
Points 1% -
3%
**Loan Origination
Fees & Points - The origination fee is charged for the lenders work
in evaluating and preparing your mortgage loan. 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 one percent of the loan amount.
A homeowner
must also be aware that costs may be payable for prepayment penalties
and for paying off any second mortgages, should they exist.
One way of saving
on some of these charges is to first check with your existing lender
who may be willing to waive some charges, if circumstances warrant
such a waiver.
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