When should you refinance a home-loan?
The timing of remortgaging a home loan determines how much you can get from such a venture. Usually it is advised that you should go for a difference of at least 2% between your current mortgage and the new mortgage before you decide to refinance. However, many people see the benefit of refinancing even when the difference in the interest rate is as less as 1%. What you need to consider is how the difference in the monthly payment will benefit you. The larger the some of the loan the more will be difference for even a small difference in the interest rate. On a mortgage of $100,000 for the interest rate of 8 ½% difference in the monthly payment by the reduction of 1% would be about $70 a month. You need to decide how much of the benefit this is given the fact that you will need to bear the closing costs of the new mortgage on which might take a few years to recover through the lowered monthly payments.
Should You Refinance If You’re Planning to Move Soon?
Usually refinancing mortgage is advised when you are going to stay in your home long enough to be able to take full advantage of a lowered monthly payments on your home loan. Every time that you refinance the mortgage you will have to pay the processing fee, application fee, originating costs and closing costs. These costs will require you to put in a lump sum of money as down payment on the mortgage or the mortgage lender will offer to roll these costs in to the principle balance of the new mortgage. The result is that either it will take you a few years to recover closing costs or your monthly payments will increase due to the additional amount of closing costs being added to the home loan. Some mortgage lenders may forgive you the closing costs but charge you a higher rate of interest. For example if it costs your $2000 to refinance your home loan and saves you $60 per month it will take you about 3 ½ years to recover these closing costs. Only after this duration you actually start to benefit from having refinanced.
Should you buy discount points for refinancing?
Answer to this question is pretty much the same as above. You can reduce the interest rate on your mortgage and subsequently lower the payments on your home loan every month by purchasing points during the time of refinance. But the fact of the matter is that you’ll have to make a payment of 1% of the mortgage loan for every single point that you purchased. If you are not intending to stay in the home for a very long time you may find that you are not able to recover the cost of purchasing points through the lower payments on your home loan.
What Is a Lock-In Period in a Mortgage Loans Interest Rate?
If the economy is in a volatile state and the interest rates fluctuating rapidly and unpredictably, you may find that the interest rate on your mortgage loan differs from the day that you applied to the day that you actually finished the process of refinancing. And the lock in period is a service that is provided by the mortgage lender in which he assures you of the same interest rate on your mortgage loan contract as the one that you agreed upon during the time of your application. This lock in period guarantees that you get the same interest rate that you agreed upon regardless of what changes have taken in the economic conditions. This period within which the interest rate is locked in at the lender typically ranges from 30 to 60 days. The mortgage lender may or may not charge a special fee for the service and may or may not also offer floated on provision which will allow the borrower to take advantage of a lower interest rate in case they happened to drop during this duration.
Should you lock in the interest rate when applying for a mortgage?
If the economy is in a state where the interest rate is fluctuating then it may be prudent to lock in the interest rate with the mortgage lender. No one can predict the changes that might occur in the interest rate between the times that you apply for a mortgage and the moment that you close the deal. This is more true for the refinancing process since it can take a longer period of time than a typical mortgage deal. The mortgage lender will be able to inform you about the trend in the market rates and if they are expected to fluctuate in the near future. In order to guard yourself against the volatile conditions of the economy and the interest rate you might deem it preferable to block in your interest rate with a mortgage lender. You will have to weigh this option with the service fee that the mortgage lender charges for the service if any. If the mortgage lender provides this service without initial charges you should almost always lock in the interest rate with the lender provided he also gives you the option of a ‘float down’. A provision for a ‘float down’ means that you will also be able to take advantage of a lower rate of interest if they happen to decrease in stead of increasing on the day that you close the deal.
What Is the Impact of blemishes on credit report on Getting a Home Loan?
It is difficult but not impossible to get a home loan if you have blemishes on your credit history. A good credit score and a good payment history is very important to qualify for good terms and conditions on a mortgage loan. Most of the mortgage lenders look to deal with consumers who have a record of being a good lending risk. The mortgage lenders who deal people who have a bad credit history will have a few other requirements. When you are trying to get a home loan on a bad credit history you will find that you may be required to make a larger down payment, except a higher interest rate on your home loan, provide valid proof of a stable income and job and even purchase points to lower the interest rate on your home loan. It is also advised when you’re shopping for a mortgage loan on a bad credit to take the help of a mortgage broker. Mortgage brokers are well versed with the trends and the offers that are prevalent in the loan industry. They work with many home loan lenders simultaneously and hence will be in a place to quickly match you with the right offer according to your credit situation.
How to Determine Which Mortgage Lending Offer Is the Best?
In order to determine which lender is offering you the best deal you not only need to consider other financial profitability of the deal but also consider the reputation of the mortgage lender as well as the services he is ready to provide you in the future. In order to gain a complete overview of the deal that you getting with a mortgage lender you need to ask them for a good faith estimate. But even before you do so you should ask the mortgage lender questions about closing costs, the ability to refinance in the future etc. All the genuine and legitimate mortgage lenders will be able to provide you with satisfactory answers to your questions and be also willing to give you a good faith estimate which requires them to include all costs of refinancing your mortgage. After getting the necessary information decide on the basis of which mortgage lender you feel the most comfortable working with. Do not decide merely on the basis of interest rate as it may be in your best interest to actually work with a mortgage lender who is reputable even though he is charging a marginally higher rate of interest.