If you are already a homeowner and interest rates drop, or your financial situation changes,
you may choose to refinance your home, something you can do as many times as you wish (or can afford)
until your mortgage is paid in full. Refinancing may be a good decision for you if:
- You have good credit.
- Your home has increased in value since you bought it.
- You plan to remain in your home long enough to recover refinancing costs.
- Interest rates are at least .5 percent to 1 percent lower than your existing mortgage interest rate.
Contact a financial planning professional or use a refinance calculator to determine if refinancing
is right for your situation.
Benefits
Refinancing can help you:
- Lower interest payments, which can save hundreds of dollars each month, thousands each year and
potentially tens of thousands over the life of your mortgage loan.
- Save on interest charges by changing from one loan type to another, such as a variable-rate
to a fixed-rate loan.
- Pay your mortgage loan in full sooner — especially if you refinance a 30-year mortgage
with a 15-year mortgage.
- Consolidate and better manage overall debt. Consult your financial planning or tax professional
for more information on these strategies.
The following chart — based on a current loan amount of $100,000, financed over 30 years at a fixed
rate of 7 percent — demonstrates the potential cost savings of various refinancing options.*
| Loan Options |
Loan Term |
Interest Rate |
Monthly Payment** |
Interest Paid Over Life Of Loan |
| Current |
30 years |
7% |
$665.30 |
|
| Option A |
30 years |
6% |
$599.55 |
|
| Option B |
30 years |
5% |
$536.80 |
|
| Option C |
15 years |
7% |
$898.83 |
|
| Option D |
15 years |
5.5% |
$817.08 |
|
* Does not consider initial refinancing costs.
** Principal and interest only.
Costs
Refinancing can cost 2 percent to 4 percent of your loan amount. Fees are generally the same
as for closing on a newly purchased home.
You may want to add or “finance in” the closing costs to the total amount of your loan.
Make sure you have been approved for a loan large enough to cover closing costs after paying
your current mortgage loan in full. Ask your lender for detailed information about this option.
Right Of Rescission
When refinancing, you have the right to rescind or cancel, your contract — and receive a full
refund of all charges — within 3 business days of signing the loan documents at closing. The Truth
in Lending Act gives this protection to borrowers, who may need extra time to carefully consider their
new loan. Recording the mortgage or Deed of Trust and loan funding will not occur until the 3-day waiting
period is over.
Take Precautions
Assess your financial situation accurately and research the potential costs carefully. When you bought
your home, your real estate agent probably did much of the work you have to do in refinancing, and the
seller may have paid some of the closing costs. If you approach it wisely, refinancing can be an effective
tool for improving your financial situation.
|
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