The decision whether to refinance or not is simply determined by the amount of savings you will achieve and the cost associated. The cost associated with refinancing is determined by the interest rate you choose.
In most cases, it is possible to refinance with the us, the lender, paying ALL of the closing costs for you. This is called a NO COST REFINANCE. To do this, we will offer you an interest rate that provides us with enough profit from the loan that they will actually pay your closing costs. The interest rate will be determined by the size of your loan. Lenders make more profit on the larger loans, so the larger the loan, the better the rate, in most cases.
If you can save more than $50 a month, and it doesn't cost you anything to refinance, why not do it?
What I normally suggest to people is to have a target in mind for a new monthly mortgage payment. Let's say you would like to save $100 per month on your payment. We can then calculate, based on the size of your loan, what interest rate would be necessary for you to save $100. Once we determine the interest rate, we can determine the closing costs necessary to obtain that rate.
Refinance to pay your loan off faster.
Many people would rather pay their loan off faster rather than reduce their monthly payment. Lower interest rates can help you do that. By trading in a 30 year loan for new 15 year loan, you might be able to save thousands in interest and have your house paid off much sooner. 15 year mortgages carry a lower interest rate than 30 year loans. Let us know what your goal is and we can tailor a new loan to fit your need.
What is the smartest thing to do financially?
Most financial planners will agree that it makes most sense to have the lowest interest rate for the LONGEST time. Why? Because if you can lock in an interest rate of 6.75%, for 30 years, the I.R.S. will let you deduct approximately 30% of the interest on your taxes. Therefore, if you have a 6.75% interest rate, your REAL rate after your tax deduction would be around 4.70%. If you can obtain a loan at 4.70%, you should borrow as much as you can, for as long as you can. Any dollars that you have left over, after paying your bills at the end of the month, should be put into a high quality investment that will earn you well over 4.70%, over time.
A fixed mortgage rate will obviously never change. Therefore, a fixed payment will become less of your monthly budget as your paycheck increases over time. So lock in a low monthly payment, for as much as you are comfortable paying each month, then put your excess funds in a better place financially.
The usual and customary closing costs associated with refinancing:
Let's say the NO COST loan did not make sense for you and you wanted a lower rate. Here are the usual costs associated with refinancing. The costs are lumped into three categories - lender fees, title company fees, and county/state fees.
Lender Fees: Appraisal ($300), Credit Report ($25), Underwriting fee ($250), Doc Prep fee ($175), Tax Service Fee ($75), Flood Cert fee ($15) - total lender fees: $840
Title Company Fees: Title Search ($175), Settlement fee ($300), Title Insurance ($2.50 per thousand of your loan amount), Recording fees ($100), Release Fees ($100) - total lender fees: $675 plus title insurance.
County/State Fees: These fees will be nominal if you are simply replacing one loan for another and not changing your loan amount much. If you are refinancing and increasing your new loan amount, your county will charge a tax on the amount of the new money you will receive. Each county charges a different rate, so contact us for the specifics.
The total cost to refinance, including lender, title company and state/county fees, is usually $1500 to $2500, depending on your circumstance. Closing costs will be higher if you pay points to reduce your rate even lower.
For a complete disclosure of all closing costs associated with your refinance, contact Jay Kaminski at 410.772.001 or by email at email@example.com.