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Is it Time to Refinance?the Real Estate Library With all the "buzz" in the media about the slowing economy and the Fed lowering interest rates, homeowners are wondering if they should refinance their current home loan. While rate drops are encouraging for homeowners with higher interest rates and buyers waiting to lock a great low rate - they can sometimes be confusing. To help you understand exactly what Fed rate drops mean for mortgage rates, here are answers to some commonly asked questions: Rates could go down even more - should I wait to get a home loan?We cannot predict interest rates - nobody can. But rates go up much faster than they come down, so if you're thinking about buying a home or refinancing - grab the good rate now (you can always refinance later if rates drop again). Any future drop in interest rates should not be drastic enough to really impact your monthly payment. Of course, every situation is different, so it's important to discuss all of your options with a loan consultant. I hear about really low rates on TV/radio (like 6.85%) - why can't I get that rate?Because that's not the complete rate. Interest rates are reported in two parts - interest charged and points paid. Unfortunately, most news reports only pick up the first part - the interest - and do not include the points. When they say the national average is 6.85, they should also mention that borrowers may have to pay about one point for that rate. For people who would prefer to pay no points, that rate would be closer to 7 1/8 percent, in this situation. When they say that closing costs are $1,000, is that all I will need to close my loan?This will vary, depending on your situation. Generally, you will probably need about another 2 percent of the purchase price at closing. Virtually every mortgage includes some prepaid interest that spans the time between the date you close and your first mortgage payment, and this is required at the time of closing. In addition, some states may require prepayment of property taxes. When refinancing, your old mortgage should have money in escrow to cover these costs. Some borrowers get a short-term loan while this escrow transfers, but most pay the money at closing knowing they will get it back when the old mortgage escrow is returned. How can I decrease the amount of my closing costs?If you are refinancing, you may be able to eliminate some costs by talking to your lender. Your lender may be able to reuse your appraisal or credit report if they're recent. Another option may be to have your lender recertify some documents (appraisal, title, etc.) for less than the cost of getting new ones. I see advertisements for loans with "No Closing Costs" - is there a catch?There are few loans that truly have no closing costs. Sometimes lenders will not charge application fees and agree to pay the appraisal and title fees, but they may increase the rate. Often times, lenders will add the various costs into the amount of your loan, and because you are not paying them up front, they are not called "closing costs". While slightly increasing your mortgage might be acceptable to you -keep in mind that it is not really a free loan. Is it a good idea to pay points to get a lower rate?If you are refinancing, this may not be your best option. Points can only be deducted from your taxes* in small increments - 1/30th a year for a 30-year mortgage - which means it will be several years before the lower interest rate you have makes up for the amount you pay in points. If you are buying a home, any points you pay are a deductible expense* that same year. Since buying points is not the best option for everyone, you should talk to your loan consultant to determine if it is the right move for you. Is it smart to convert from an adjustable-rate mortgage to a fixed-rate mortgage?Absolutely. Rates are the lowest they have been in years, which makes this an excellent time to get out of an ARM. You can lock in a great fixed rate and eliminate the risk of your ARM adjusting when rates go back up. Helpful Financial Planning Calculators
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