Home Refinancing Basics
Even though more than half of all new mortgages issued in recent years have been for homeowners refinancing their existing home loans, the decision to refinance isn’t necessarily the wisest strategy for everyone. The most important fact to consider is whether the savings from refinancing will compensate for the cost of the refinancing itself. If you don’t plan to stay in your home long enough to break even, refinancing could be a mistake.
The old and arbitrary rule of thumb said that a refinance only makes sense if you can lower your interest rate by at least two percentage points for example, from 6% to 4%.
All Mortgages Are Not Created Equal
Don’t make the mistake of choosing a mortgage based only on its stated annual percentage rate (APR), because there are a variety of other important variables to consider, such as:
The term of the mortgage — This describes the amount of time it will take you to pay off the loan’s principal and interest.
The variability of the interest rate — There are two basic types of mortgages: those with “fixed” (i.e., unchanging) interest rates and those with variable rates, which can change after a predetermined amount of time has passed.
Points — Points are fees that you pay to a lender or broker when you close the deal. While a “no cost” or “zero points” mortgage does not carry this up-front cost, it could prove to be more expensive if the lender charges a higher interest rate instead. Examples of Fees Consists of: Application fee; Loan origination fee, Points, Appraisal fee, Home inspection fee, Prepaid interest, Private mortgage insurance, Flood determination
This article is not a complete summary of all information and is not a recommendation. Consult the appropriate advisor prior to making any financial decision to discuss the risks, fees, and tax consequences
About the author: Charles Marsala is a Financial Advisor with Benchmark Investment Group. He can be contacted at Charles.Marsala@lpl.com. Securities offered through LPL Financial, Member FINRA/SIPC