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Is Now the Time to Refinance?

by Rose Price

As interest rates drop to historic lows, several homeowners in Champaign, IL are making the decision to take advantage of refinancing their home. Keep in mind, even if your neighbor is refinancing, it might not be the right move for you. Below are some things you need to take into consideration before making your final decision regarding refinancing.

Although rates are low right now, the present economic crisis has caused a lot of lenders to reduce the amount of loans they give out.  This is a drastic change from the last few years when requirements were very loose and almost anyone was eligible for a mortgage. If you are figuring out how to save on your mortgage refinance, its vital to make sure you do your homework and get your facts right.

First, look at your loan-to-value ratio. In a no-cash-out refinancing (where the amount of your new loan doesn't exceed the balance of your existing loan, plus points and closing costs, if applicable), you may be able to borrow as much as 95% of your home's value. However, if the value of your home has fallen below the amount of your existing mortgage balance, you may not be able to refinance at all. This sadly, has been the case for many homes.  But you may be able to proceed through the American Recovery and Reinvestment Act of 2009's Home Affordable Refinance program.

The major advantage of refinancing to a new lower interest rate is that you will save a substantial amount on your monthly mortgage payment. This is of course why most people choose to refinance their mortgage. It is important to keep in mind however that there are going to be costs involved with refinancing such as closing costs, points, and possible appraisal  and attorney fees.

Do your research and shop around for the best refinancing interest rates. All banks are not created equal, some banks and financial institutions charge higher rates than others. Normally, the smaller Community Banks and Credit Unions are more consumers oriented and charge lower rates.

In addition, when shopping around, look and compare interest rates and points versus no points before you refinance. Look out for embedded points included in the closing costs. Keep in mind, some lenders will include points in the closing cost without necessarily actually quoting these costs as points.

As a homeowner, it is important you do your research and educate yourself -- reach out to a professional who can walk you through refinancing as it's not a one size fits all solution.   

Have questions? Contact me today for help understanding the entire refinancing process.

 

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Mortgage Points Explained

by Rose Price

If you are a Central Illinois homebuyer who is requesting quotes from a lender for a home loan, you have most likely found that the quotes frequently include both loan rates and points. If you are like most people, you may be confused by what exactly a point is.

Mortgage points describe certain charges to be paid in order to obtain a mortgage on a home. Each mortgage point is a fee based on one percent of the total amount of the loan

A point is a fee equal to 1 percent of the loan amount. For example, A 30-year, $200,000 mortgage might have a rate of 6 percent, but come with a charge of 1 point, or $2,000. A lender can charge 1, 2 or more points. There are two kinds of points: discount points and origination points.

 •Discount points: These types of points are really prepaid interest on the mortgage loan Because, the more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically can pay anywhere from zero to 3 or 4 points, depending on how much they want to lower their rates. The advantage to this type of point is that it is tax-deductible.
 

Origination fee: This is a fee that is charged by the lender to cover the costs of making the loan. The origination fee is only tax deductible if it was used to obtain the mortgage and not to pay other closing costs. The IRS specifically states that if the fee is for items that would normally be itemized on a settlement statement, such as notary fees, preparation costs, and home inspection fees are not deductible.

The longer you keep the home financed under the loan that has the purchased points, the more money spent on the points will pay off.  And if the homebuyer has the intention to buy and sell the property or refinance in a big hurry, the buying points will actually end up costing more than just paying the loan at the higher interest rate.

Whether or not you pay points, or how many points can be effected by a variety of factors.  The amount of money that you can put down at closing and also how long you plan on staying in your home can be a factor. If you are planning to stay in your home for a long time, you may find it worth it pay points so that it reduces your interest rate.

The process can be confusing so make sure to have your mortgage lender explain these fees with you at length!

 

 

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Displaying blog entries 81-82 of 82

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