TAKE INTEREST IN REFINANCING

Is refinancing your mortgage in your best interest?  Interest rates and mortgages are plummeting, and hitting all time lows.  This trend makes refinancing de rigueur.  Refinancing can be a worthwhile option.  However, it sometimes does not make good financial sense, and it is not in everyone’s best interest.  Before you clean house, and restructure your finances, take the time to crunch the numbers, to ask the right questions, and weigh the pros and cons that invariably accompany this important refinancing decision.

CRUNCH THE NUMBERS

Refinancing your mortgage is not a cost-free endeavor.  When you refinance, you are in essence applying for a new mortgage.  This entails paying most of the same closing costs and other fees that you paid to obtain your original mortgage.  Costs that you may incur include: application fees, loan origination fees, points (a point equals one percent of the loan amount), appraisal fees, title search, credit check, and lawyer’s services.  You also want to ascertain whether there is a prepayment penalty on your present mortgage if you pay it off early.  The mortgage documents that you have for your existing loan will state if there is a penalty for prepayment.  The law requires that the mortgage lender furnish you with a written disclosure statement of the costs and terms of the financing before you become legally obligated for the loan.  Before you agree to sign up for a new mortgage, it is essential that you carefully review this disclosure statement, and understand all of the credit terms, conditions, implications, and fees.  If there is an application fee, ask the lender whether the fee is refundable if you opt not to take the loan, or if you are not approved for the loan.

DO PRELIMINARY HOUSEKEEPING

Always take the time to shop around, and compare and contrast annual percentage rates, interest, points, and fees.  Obtain information from a variety of sources.  Different lenders may quote you significantly different prices.  If you have Internet access, http://www.bankrate.com offers a list of rate comparisons.  Do not be afraid to negotiate the terms of your loan.  Most things are negotiable, and it costs you nothing to ask for better rates and terms.  You also do not want to overlook your current mortgage lender.  Oftentimes, in order to keep you as a customer, they will offer you lower refinancing fees, and better rates than their competitors.  After doing your homework, if you determine that refinancing is not the best option, ask your lender whether you may be able to modify the terms of your existing mortgage instead of having to refinance.

TAKE INTEREST IN SAVING

Refinancing may be a wise idea if you desire to get out from under a high interest rate loan; if you have an adjustable-rate mortgage and you want to move to a fixed-rate in order to have the peace of mind of knowing exactly what the mortgage payment will be over the life of the loan; or if you want to build up equity more rapidly by converting to a loan with a shorter term.  For example, you may want to change your thirty-year mortgage to a 15-year term.  You want to take into account how long you intend to live in your home.  It makes best sense to refinance if you intend to stay in your house long enough to recoup the additional fees that it will cost to refinance.  As a general rule of thumb, refinancing may be worth your while if the current interest rate on your mortgage is at least two percentage points higher than the prevailing market rate.  Caveat, there are a myriad of considerations other than the interest rate that should dictate whether refinancing is the right choice for you.

Please send your consumer and legal questions to elisha.abrams@att.net, or write to 2401 Pennsylvania Ave., Suite 1C-46, Philadelphia, PA 19130, Tel: 215-765-4828, Web Address: www.legallyinformed.com

© Elisha Hoffman Abrams and LegallyInformed’s Blog, 2009. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Elisha Hoffman Abrams and LegallyInformed’s Blog with appropriate and specific direction to the original content.

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