3 Stellar Mortgage Refinance Tips
Mortgage rates are so low these days, it’s possible to refinance your house for around 5%. That’s pretty darn good considering back in the 1980′s rates were twice as high.
In this post I’m going to give you 3 stellar mortgage refinance tips that will help you save hundreds if not thousands of dollars.
Refinance Into A Shorter Loan
The biggest mistake a lot of people make is that they refinance back to a typical 30 fixed mortgage. The problem with this is that the highest amount of interest is paid in the first 10 years of this type of loan, and by refinancing back into a 30-year fixed you effectively choose to go through this high-interest period twice.
Instead, refinance into a 15 or 20-year fixed rate mortgage. If you had a 30 fixed mortgage for 7 years try refinancing to a 20 or 15 year loan. This is the easiest way to cut time off of what you owe.
Review The HUD Statements
Next, review the HUD statements. This is better known as the Housing and Urban Development Statement which tells you what the cost to refinance your loan.
What I like to do is compare these statements when I’m shopping for a new home loan. They will tell you who has the actual cheapest closing cost. The worst thing you can do is take the bankers word for it. A lot of times they will leave certain cost out to make their closing cost look cheaper.
Pick The Right Loan
Finally, it’s important to find the right loan. A lot of lenders will recommend only the types of mortgages that will earn them the most profit. This is actually an illegal practice called steering where lenders will push you to get one loan over another.
Instead, you should be looking at loans that will meet your needs. For example, let’s say you are buying a starter house and plan to live in the house for no more than 5 years, and after that you are planning to build a house.
In this situation it might be better to get a 5/1 ARM because it will be fixed for five years and the rate will be lower than a 30 year fixed; however (and this is a big however), you run the risk of seeing your mortgage payments dramatically increase after 5 years if you decide to stay in your home after all and are unable to refinance. Ditto with an interest-only mortgage.
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Good advice particularly on the 15 year loan. Rates will probably never be this low again anytime soon and the payment on 15 years is not that much more than a 30.
Have to say these are 3 of the best commonsense suggestions I have seen to help homeowners who want to refinance their mortgage for quite a while. Going for a full 30 years when you remortgage is actually likely to cost the borrower more in interest in many cases than they were probably going to pay before remortgaging, not always but often.
Working out the total cost of all the repayments, plus fees and charges for any options available so that you can make an informed decision has got to be the way to approach refinancing.
These are some great tips for those considering refinancing their mortgage. I recently helped my mom renegotiate her mortgage, resulting in a shorter term, lower interest rate (2.5% less) and absolutely no closing costs. The key to our success was understanding the market and being willing to walk away with another lender (really did not want to do this given we had more of a chance to incur closing costs).
Another tip I would offer is to truly understand the cost of refinancing (closing costs, terms). I have a friend who recently refinanced because it shaved $400 off of her mortgage payment. However, the reality of the refinanced mortgage was – an increased term (going from a 30 year to 40 year mortgage) and a less than appealing interest rate.
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