It’s no secret that refinance mortgage rates are at historically low levels and there are more refinancing opportunities available than there were a year ago. Many people paying six percent or higher are scrambling for refinancing with today’s best mortgage lenders like Amerisave. Why is it then that some of your neighbors are getting a better deal than others? I mean really, why should those jerks get lower mortgage rates than you? Here are several tips before you refi to make sure your neighbors don’t one-up you when it comes refinancing your home.
Mortgage Lenders Are Crafty Bastards
Advertisers have one goal when crafting their campaigns. They want to separate you from your money and they’ll say just about anything to accomplish that goal. Mortgage lenders are no different and bait-n-switch tactics are alive and well in today’s market. There are several tricks they use to promote overpriced home loans that you need to know about when refinancing your home.
The first thing you need to know about advertised refinance rates is that the interest rates you see on tv and advertised online are based on having a credit score of 820 or better. If your credit score is lower then you’re simply not going to qualify for the advertised refinance mortgage rates. Those rates are also based on having a favorable loan-to-value ratio. The amount of equity you have in your home can make mortgage refinancing much more expensive if not become a barrier to qualifying altogether.
Beware Overpaying Discount Points
The second trick mortgage lenders use to make their loan offers appear more attractive is quote interest rates based on discount points. Mortgage Refinance Rates appeared stuck at just over four percent at the end of last year; however, several of the best refinance companies were suddenly advertising in the neighborhood of three percent. Did mortgage rates go down? No, these mortgage companies were simply quoting interest rates with discount points hidden in the fine print.
Remember, discount points are a fee you pay at closing for lowering your mortgage refinance rates. One discount point is one percent of your home loan amount and typically lowers your interest rate by .25 percent. Should you agree to pay discount points when refinancing your home? With interest rates at such low levels it’s not only unnecessary but overpaying at closing could make refinancing a losing proposition.
How to Lose Money Refinancing Your Home
Agreeing to unnecessary discount points or paying too much for the mortgage loan origination fee results in more cash out of your pocket at closing. Did you know the fees you pay when mortgage refinancing determine how good of a deal you’re getting regardless of how low your mortgage rates? The reason fees are so important is that if you don’t recoup your out-of-pocket expenses from closing you’re losing money no matter what. The more you pay for mortgage refinancing the more difficult it’s going to be to break even. Here’s an example to show you how to calculate your break-even point on your mortgage refi.
Suppose you’re refinancing your home for $350,000 and you qualify for a mortgage refinance rate of 4.5 percent. You agree to pay .25 in points in addition to a 1.5 percent loan origination fee as well as the required lender fees. Your negotiable fees in this case (points and loan origination) total $6,125. ($875 in points plus $5,250 for the origination fee)
The old payment was based on a mortgage rate of 5.5 percent and was $1,987 per month. Your new payment based on a refinance mortgage rate of 4.5 percent is $1,773. The difference between your old and new payment amount is $214 per month. That’s awesome, how can saving $214 on your mortgage payment go wrong?
How You Refinance Matters
The question of how good of a deal you’re getting boils down to how much you’re paying to save that $214 per month. In this example the two fees that you can negotiate total $6,125. Based on your monthly savings of $214 it’s going to take 29 months, almost two and a half years to break even recouping your out-of-pocket expenses. If you refinance again before breaking even on your closing costs you’ll be losing money no matter how low your refinance rates.
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