It’s important to think of all the questions to ask about refinancing before actually signing anything as refinancing is not for everyone.
People refinance for many reasons – to lower monthly payments, to pay off a loan, build equity faster, convert a variable rate into a fixed rate mortgage etc.
When considering refinancing you not only need to know what questions to ask about refinancing but you also need to answer some questions yourself before you seek out the advice of a lender.
The questions you need to ask yourself include how long do you plan on residing in your home and how long have you held your current mortgage?
In order to make the costs of refinancing worth it, you need to be in your home long enough to reap the benefits. Experts recommend that anything more than five years is good. If you intend to move before that time you will have little to gain from refinancing. And if you plan on moving in three years or less, it makes virtually no sense at all to refinance.
That said, if you’re nearing the end of a fixed rate loan (in other words, you’ve already taken advantage of most of your tax deductible interest), a new loan could prove beneficial. The advantage here is you can deduct the interest and prorated points year by year.
Now as to the questions to ask about refinancing, you need to know what refinancing will cost you in the way of points, transaction fees and other closing costs.
Your refinancing lender will be able to provide you with an amortization chart showing the real expense of pre-paying interest points. You may want to also ask for a modified Annual Percentage Rate (APR) spreadsheet that combines costs over the years you plan to reside in your home. That said, if you’re considering a no-points refinancing, be careful to weigh the costs of any additional interest and other fees that may be hidden in higher mortgage rates.
Among your questions to ask about refinancing, you need to know if interest rates are higher for a cash-out refinance. The rate of interest you need to pay on a cash-out refinance loan is usually the same you would pay on a non-cash out loan. However, there may be an incremental fee associated with cash-out refinancing depending on the loan program you select and the loan to value ratio.
Refinancing can be a smart move. Using the equity in your home to pay off other bills can really make a difference to your bottom line. You may wish to pay off any and all debts that have interest that is not tax deductible. Chances are good you may be able to deduct the interest on refinancing money. To be sure check with your tax advisor.
Next, you should be asking if you can “lock in” an interest rate. Nobody can predict what interest rates will do but historically rates tend to go up faster than they come down. So if you’re thinking about refinancing your mortgage this is among one of the most important questions to ask about refinancing.
It’s important for you to get the best rate you can now. Remember you always have the option of refinancing later if the rates do drop again. However, you will also want to bear in mind that any future interest rates need to be substantial enough to impact your monthly loan payment.
Before sitting down with a lender take the time to make a list of the questions to ask about refinancing. Having all your questions answered will help you make an informed decision about whether refinancing is right for you.
This article is part of the resources, guides and tools dedicated to your finance successes found on Keith Choy’s WealthMountains Site. For re-print rights to this article, do drop Keith a note from his website at http://www.wealthmountains.com/contact-us/