When should I
refinance?
Should I
refinance if I
plan on moving
soon?
How much will it
cost me to
refinance?
What are points?
Should I pay
points to lower
my interest
rate?
What does it
mean to lock the
interest rate?
Should I lock-in
my loan rate?
I've had credit
problems in the
past. Does this
impact my
chances of
getting a home
loan?
I've only been
late a couple of
times on my
credit card
bills. Does this
mean high
interest rates?
How can I find
the best deal?
Should I choose
the lender with
the lowest
interest rate
and costs?
When I should refinance?
It is often said
that you should
refinance when
mortgage rates are
2% lower than the
rate you currently
have on your loan.
Refinancing may be a
viable option even
if the interest rate
difference is less
than 2%. A modest
reduction in the
loan rate can still
trim your monthly
payment. For
example, the monthly
payment (excluding
taxes & insurance)
would be about $770
on a $100,000 loan
at 8.5%. If the rate
were lowered to
7.5%, the monthly
payment would be
about $700, a
savings of $70. The
significance of such
savings in any
scenario will depend
on your income,
budget, loan amount
and the change in
interest rate. Your
trusted lender can
help calculate the
different scenarios.
return to top
Should I refinance
if I plan on moving
soon?
Most lenders will
charge fees to
refinance a loan. If
you plan to stay in
the property for
less than a couple
of years, your
monthly savings may
not get a chance to
accumulate and
recoup these costs.
Let's say a lender
charged $1,000 to
refinance your loan,
but it resulted in a
monthly savings of
$50. It would take
20 months (1,000
divided 50) to
recoup the initial
costs before you
start to realize
some savings. Some
lenders will charge
a slightly higher
than average
interest rate on
refinance loans, but
waive all costs
associated with the
loan. The
attractiveness of
these loans will
depend on the
interest rate you
are being charged on
your current loan.
return to top
How much will it
cost me to
refinance?
In addition to an
application fee
($250-350) you will
likely have to pay
an origination fee
(typically 1% of the
loan amount). In
many cases you will
have to pay much of
the same costs that
you had to pay with
your current home
loan (title search,
title insurance,
misc. lender fees,
etc.). The sum of
these fees could
cost you up to 2-3%
of the loan amount.
If don't have the
money to pay for
associated loan
costs, look for
lenders that offer
'no-cost' loans.
These loans will
charge a slightly
higher interest
rate, so ask a
lender if it would
still make sense to
refinance using this
type of program.
return to top
What are points?
Points are costs
that need to be paid
to a lender in order
to receive mortgage
financing under
specified terms. A
point is a
percentage of the
loan amount (one
point = one percent
of the loan). One
point on a $100,000
loan would be
$1,000. Discount
points are fees that
are used to lower
the interest rate on
a mortgage loan (you
are discounting the
interest rate by
paying some of this
interest up-front).
Lenders may express
other loan-related
fees in terms of
points. Some lenders
may express their
costs in terms of
basis points
(hundredths of a
percent). 100 basis
points = 1 point (or
1 percent of the
loan amount).
return to top
Should pay
points to lower my
interest rate?
If you plan on
staying in the
property for at
least a few years,
paying discount
points to lower the
loan's interest rate
can be a good way to
lower your required
monthly loan payment
(and possibly
increase the loan
amount that you can
afford to borrow).
If you only plan to
stay in the property
for a year or two,
your monthly savings
may not be enough to
recoup the cost of
the discount points
that you paid
up-front. Ask your
lender how long it
would take for your
monthly savings to
recoup the costs of
the discount points.
return to top
What
does it mean to lock
the interest rate?
Due to the nature of
interest rate
movements, mortgage
rates can change
dramatically from
the day you apply
for a mortgage loan
to the day you close
the transaction. If
interest rates rise
sharply during the
application process,
it could make a
borrower's mortgage
payment larger than
he/she previously
thought. To protect
against this
uncertainty, a
lender can allow the
borrower to
'lock-in' the loan's
interest rate,
guaranteeing the
borrower the
prevailing loan rate
for a specified
period of time
(often 30-60 days).
A lender may or may
not charge a fee for
this service.
return to top
Should I lock-in my loan
rate?
No one knows for
sure how interest
rates will move at
any given time, but
your lender may be
able to give you an
estimate of where it
thinks mortgage
rates are headed. If
interest rates are
expected to be
volatile in the near
future, you may want
to consider locking
your interest rate
if rising rates will
no longer allow you
to qualify for the
loan. If your budget
can handle a higher
loan payment or if
the lender's lock
fee seems excessive
for your means, you
might want to
consider allowing
the interest rate to
'float' until the
loan closing.
return to top
I've had credit
problems in the
past. Does this
impact my chances of
getting a home loan?
Obtaining a home
loan is possible
even with extremely
poor credit. If you
have had credit
problems in the
past, a lender will
consider you to be a
risky borrower to
lend to. To
compensate for this
added risk, the
lender will charge
you a higher
interest rate and
usually expect you
to pay a higher down
payment on your home
purchase (typically
20-50% down). The
worse your credit
is, the more you can
expect to pay for an
interest rate and a
down payment. Not
all lenders choose
to lend to risky
borrowers, so you
may have to contact
several before
finding one that
will.
return to top
I've only been late
a couple of times on
my credit card
bills. Does this
mean I will have to
pay an extremely
high interest rate?
Not necessarily. If
you have been late
less than three
times in the past
year, and the
payments were no
more than 30 days
late, you probably
have a pretty good
chance at getting a
home loan at a
competitive interest
rate. Lenders
guidelines will
vary, but most
lenders will excuse
a couple of minor
'late-pays' as long
as the borrower can
provide a reasonable
excuse explaining
them (i.e. job
transition,
illness). If the
late-pays were 60+
days late and cannot
be explained, you
may have to settle
for a higher
interest rate.
return to top
How can I find the
best deal?
When comparison
shopping among
lenders, remember
that a lender can
structure financing
for a borrower
several different
ways. A lender can
charge higher fees
and offer a low
interest rate while
another may charge a
slightly higher
interest rate with
lower fees. In order
to make an 'apples
to apples'
comparison between
lenders, ask each
lender what their
interest rate is for
a zero discount
point loan (based on
a 30 or 60 day lock
period). Then ask
each lender what
they charge for an
origination fee, as
well as any other
fees they typically
charge for a loan,
(i.e. broker,
processing,
underwriting). A
reputable lender
will not hesitate in
answering these
questions.
return to top
Should I choose the
lender with the
lowest interest rate
and costs?
There are primarily
two things to
consider when
choosing one lender
over another: the
quality of service
being provided and
the cost of services
provided. Quality of
service is
especially important
to those who have
never purchased a
home. First-time
home buyers will
likely have many
questions regarding
the financing
process and
available loan
options. When
comparing lenders,
ask each lender
several questions
before you fill out
any loan
application. A good
lender should be
able to get you
through the
financing process
leaving you
confident that you
made a sound
financial decision.
If after a few
questions you do not
feel comfortable
with the lender,
simply call someone
else.
return to top
