Q. When should I refinance
my current mortgage loan?
It is often said that you should refinance when mortgage rates are 2% lower
than the rate you currently have on your loan. Refinancing may be a viable
option even if the interest rate difference is less than 2%. A modest
reduction in the loan rate can still trim your monthly payment. For example,
the monthly payment (excluding taxes & insurance) would be about $770 on
a $100,000 loan at 8.5%. If the rate were lowered to 7.5%, the monthly
payment would be about $700, a savings of $70. The significance of such
savings in any scenario will depend on your income, budget, loan amount and
the change in interest rate. Your trusted lender can help calculate the
Q. Should I refinance if I
plan on moving soon?
Most lenders will charge fees to refinance a loan. If you plan to
stay in the property for less than a couple of years, your monthly savings
may not get a chance to accumulate and recoup these costs. Let's say a
lender charged $1,000 to refinance your loan, but it resulted in a monthly
savings of $50. It would take 20 months (1,000 divided 50) to recoup the
initial costs before you start to realize some savings. Some lenders will
charge a slightly higher than average interest rate on refinance loans, but
waive all costs associated with the loan. The attractiveness of these loans
will depend on the interest rate you are being charged on your current loan.
Q. What are points?
Points are costs that need to be paid to a lender in order to receive
mortgage financing under specified terms. A point is a percentage of the
loan amount (one point = one percent of the loan). One point on a $100,000
loan would be $1,000. Discount points are fees that are used to lower the
interest rate on a mortgage loan (you are discounting the interest rate by
paying some of this interest up-front). Lenders may express other
loan-related fees in terms of points. Some lenders may express their costs
in terms of basis points (hundredths of a percent). 100 basis points = 1
point (or 1 percent of the loan amount).
Q. Should I try to pay as
many discount points as possible to lower my loan's interest rate?
If you plan on staying in the property for at least a few years,
paying discount points to lower the loan's interest rate can be a good way
to lower your required monthly loan payment (and possibly increase the loan
amount that you can afford to borrow). If you only plan to stay in the
property for a year or two, your monthly savings may not be enough to recoup
the cost of the discount points that you paid up-front. Ask your lender how
long it would take for your monthly savings to recoup the costs of the
discount points. Try
the Refinance rate shopping center at LoanWeb.com
Q. What does it mean to lock
the interest rate on a mortgage loan?
Due to the nature of interest rate movements, mortgage rates can
change dramatically from the day you apply for a mortgage loan to the day
you close the transaction. If interest rates rise sharply during the
application process, it could make a borrower's mortgage payment larger than
he/she previously thought. To protect against this uncertainty, a lender can
allow the borrower to 'lock-in' the loan's interest rate, guaranteeing the
borrower the prevailing loan rate for a specified period of time (often
30-60 days). A lender may or may not charge a fee for this service. A
simpler process would be to have several lenders contact you.
Q. Should I lock-in my
loan rate when I apply for a mortgage loan?
No one knows for sure how interest rates will move at any given time,
but your lender may be able to give you an estimate of where it thinks
mortgage rates are headed. If interest rates are expected to be volatile in
the near future, you may want to consider locking your interest rate if
rising rates will no longer allow you to qualify for the loan. If your
budget can handle a higher loan payment or if the lenders lock fee seems
excessive for your means, you might want to consider allowing the interest
rate to 'float' until the loan closing.
low rates? REFINANCE
I've had credit problems in the past. How does this impact my chances of
getting a home loan?
Obtaining a home loan is possible even with extremely poor credit. If
you have had credit problems in the past, a lender will consider you to be a
risky borrower to lend to. To compensate for this added risk, the lender
will charge you a higher interest rate and usually expect you to pay a
higher down payment on your home purchase (typically 20-50% down). The worse
your credit is, the more you can expect to pay for an interest rate and a
down payment. Not all lenders choose to lend to risky borrowers, so you may
have to contact several before finding one that will. A simpler process
would be to have several lenders contact you.
Q. I've only been late a couple of times on my credit card bills. Does
this mean I will have to pay an extremely high interest rate?
Not necessarily. If you have been late less than three times in the
past year, and the payments were no more than 30 days late, you probably
have a pretty good chance at getting a home loan at a competitive interest
rate. Lender guidelines will vary, but most lenders will excuse a couple of
minor 'late-pays' as long as the borrower can provide a reasonable excuse
explaining them (i.e. job transition, illness). If the late-pays were 60+
days late and cannot be explained, you may have to settle for a higher
Q. How can I tell
who has the best deal on financing?
When comparison shopping among lenders, remember that a lender can
structure financing for a borrower several different ways. A lender can
charge higher fees and offer a low interest rate while another may charge a
slightly higher interest rate with lower fees. In order to make an 'apples
to apples' comparison between lenders, ask each lender what their interest
rate is for a zero discount point loan (based on a 30 or 60 day lock
period). Then ask each lender what they charge for an origination fee, as
well as any other fees they typically charge for a loan, (i.e. broker,
processing, underwriting). A reputable lender will not hesitate in answering
these questions. To start the process use the Quick online rate quote form
at the REFINANCE
Q. Should I choose the
lender with the lowest interest rate and costs?
There are primarily two things to consider when choosing one lender
over another: the quality of service being provided and the cost of services
provided. Quality of service is especially important to those who have never
purchased a home. First-time home buyers will likely have many questions
regarding the financing process and available loan options. When comparing
lenders, ask each lender several questions before you fill out any loan
application. A good lender should be able to get you through the financing
process leaving you confident that you made a sound financial decision. If
after a few questions you do not feel comfortable with the lender, simply
call someone else. Looking for